74 Journal of Regulatory Compliance Issue II
actively involved in preventing fraud for fear of being named a supervisor.230
In a speech Gallagher gave in February of 2012, he acknowledged that the
question of what really makes a compliance officer a supervisor is still
F. Eugene Mason
In 2015, a disciplinary action was filed against SFX Financial Advisory
Management Enterprises, Inc. (“SFX”) and Eugene Mason (“Mason”) for
violating Sections 203(e), 203(f), and 203(k) of the Investment Advisers Act
of 1940.232 Mason became the CCO for SFX in 2004.233 From 2006 to 2011,
the President of SFX stole nearly $700,000 from three client accounts.234
SFX failed to have policies and procedures in place to prevent client accounts
from being misappropriated.235 During the investigation, the annual review
was not completed.236 Mason was charged with failure to complete the
annual review for 2011, a misstatement about how client accounts are
reviewed, and failure to implement necessary policies.237 The misstatement
pertained to client accounts being reviewed by senior management to check
The SEC considered Mason’s failures a “willful violation.”239 As soon as
Mason was alerted of the President’s stealing he immediately performed an
internal investigation, had the President fired, and reported the incident to
law enforcement.240 This sounds like proactive enforcement on the part of
the CCO. However, the three areas the SEC focused on were effective policy
implementation, false statements, and the annual program review.241 The
particulars are unknown regarding how the President circumvented company
230. Daniel M. Gallagher, Commissioner, U.S. Securities & Exchange Commission,
Keynote Address at the Investment Advisor Association Investment Advisor Compliance
Conference/2012 (Mar. 8, 2012), Inv https://www.sec.gov/news/speech/2012-
232. SFX, supra note 1, at 1.
233. Id. at 2.
235. Id. at 3.
237. Id. at 4.
238. Id. at 4.
239. Scott Killingsworth, CCO Liability: Winds of Change at the SEC?, COMPLIANCE &
ETHICS BLOG (Jun. 19, 2015), http://complianceandethics.org/cco-liability-winds-of-change-at-the-sec/.