A former SEC examiner is warning chief compliance officers (CCOs) at advisory firms and broker-dealers that two recent cases brought by the Securities and Exchange Commission (SEC) against CCOs is a sign that “both the CCOs and the firms themselves need to realize how vulnerable they are and their degree of liability,” says Amy Lynch, founder and president of FrontLine Compliance. CCOs, Lynch says, need to be more forceful in bringing items of concern to the attention of their superiors.
CCOs have “one of the toughest jobs there is,” says Lynch, whose firm has offices in Leesburg, Va., and New York. CCOs perform a balancing act– “they need to keep their distance so they are the cop on the beat, but not be adversarial so they can communicate with the managers,” she says. “If they can’t communicate, how will they know what is going on?”
The SEC and the Financial Industry Regulatory Authority (FINRA) are both “being much more strict in their compliance,” Lynch adds. Now that the SEC has received a budget boost from Congress, the agency is “going to enforce its powers more than ever.” The SEC’s staff “is growing…and I think [the SEC] will continue to try to hire more experienced staff.”
In addition to censuring the firms, the SEC took action against the firms’ principals, including their CCOs, and reprimanded them for violations to the Investment Advisers Act that continued even after the SEC and a consultant warned them that they needed to comply.
In Aletheia, the SEC found against Roger Peikin and assessed him a $100,000 penalty, noting he was Aletheia’s CCO during the relevant period. Peikin is also the company’s co-founder.
The SEC order cited Altheia for sending proposals to clients and potential clients that failed