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GC/CCO Fined and Barred for Failing to Disclose Unauthorized Use of Funds

secrecy vs transparency

The SEC censured, fined and barred from practicing before the Commission the General Counsel/Chief Compliance Office of an investment adviser accused of making unauthorized investments and then misleading a public pension client.  The SEC alleges that the GC/CCO, also an 8% equity participant in the adviser, knew about the transactions but failed to disclose them to the public plan client on several occasions including an annual budget meeting.  The SEC asserts that a “vast majority of the compensation earned by [the firm’s] principals was directly attributable to the management and transaction fees” earned from its work with the public plan.  The SEC charges the respondent with aiding and abetting securities fraud.

OUR TAKE: This is why a GC should not also serve as the CCO.  Part of a lawyer’s job is to advocate for his/her client and includes an absolute obligation to keep information confidential to preserve attorney-client privilege.  The CCO is a regulatory officer whose job is to implement policies and procedures reasonably designed to prevent violations of the securities laws and report on the compliance program.  These two conflicting obligations cannot coexist in the same office.

https://www.sec.gov/litigation/admin/2016/34-78274.pdf