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Dual-Hatted CCO Barred and Fined

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An RIA’s Chief Compliance Officer, who was also a firm principal and executive, was barred and fined for failing to implement policies and procedures, thereby resulting in multiple violations of the Advisers Act.  The SEC asserts that the respondent, together with other firm principals, failed to disclose several conflicts of interest in connection with the sale of proprietary products used to finance affiliated real estate projects.  The SEC asserts that the CCO “had no specific training as a compliance officer” and used a template compliance manual that was “purchased off-the-shelf from a third party” without specific tailoring to the business.

OUR TAKE: The SEC does not want fake CCOs that are merely dual-hatted executives without regulatory experience and who spend minimal time on compliance.  The compliance rule (206(4)-7) requires the appointment of a qualified compli-pro with relevant regulatory experience who drafts and implements policies and procedures tailored to the business and makes a significant time commitment to compliance activities.

http://www.sec.gov/litigation/admin/2016/ia-4399.pdf