SEC Director of Enforcement Likes CCOs and Seldom Prosecutes Them
SEC Division of Enforcement Director Andrew Ceresney offered perspective on enforcement actions against compliance personnel. In an address to the National Society of Compliance Professionals, he focused on recent actions in the investment adviser space and clarified the circumstances under which the SEC takes action. He also discussed efforts to protect compliance officers.
Mr. Ceresney argued that two recent enforcement actions demonstrate the SEC's efforts to protect the compliance function and its resource needs. In one of the actions, the SEC effectively charged the CEO with failing to provide enough support to the CCO; in the other, the SEC charged a portfolio manager with fraud after finding he deliberately misled a CCO. Mr. Ceresney asserted that both cases are examples of how the SEC "aggressively" pursues business line personnel and firms that mislead or deceive CCOs, or whose failure to support them leads to compliance violations.
Additionally, Mr. Ceresney described "rare instances" in which the SEC charged CCOs in enforcement actions. He outlined three situations in which the SEC is likely to take action: (i) when CCOs are "affirmatively involved" in misconduct that is unrelated to their compliance function, (ii) when CCOs engage in efforts to obstruct or mislead SEC staff and (iii) when CCOs exhibit a "wholesale failure" to carry out their responsibilities. According to Mr. Ceresney, the SEC has brought only five enforcement actions in the past 12 years against the CCOs of investment advisers for failing to institute adequate compliance systems, and only when the CCOs made no other attempts to obstruct SEC staff.
Lofchie Comment: Numerically, Mr. Ceresney makes a strong case that the SEC doesn't target CCOs. It is true, that except in extreme cases, the decision to bring an action against a CCO ultimately requires regulatory judgment. One example of the exercise of that judgment was the disciplinary action that the SEC brought against the CCO of Blackrock for overlooking the outside business activities of one of Blackrock's employees. Mr. Ceresney devoted a significant part of his speech to outlining that action and explaining why it was appropriate. Even so, a good case can be made that the SEC made the wrong judgment in that situation. Leaving aside the arguable unfairness to the individual, the case continues to worry the CCO community.
See: Mr. Ceresney's Remarks.
Related news: Commissioner Aguilar Calls for More Clarity in SEC Enforcement Orders (with Lofchie Comment and YouTube Selection) (August 10, 2015).