The Chief Compliance Officer of a broker-dealer was barred from the industry for mis-using his position to assist his brothers’ securities fraud scheme. According to the SEC, the brothers engaged in a long-running securities fraud to fleece foreign investors with phony offerings, fake names and bogus fees. The SEC charges that the respondent used his privileged position as a broker-dealer’s chief compliance officer to create accounts and move funds without supervision. The SEC asserts that he created “house” accounts and mis-labeled wires to hide the scheme. The SEC charges that the CCO thereby aided and abetted violations of the anti-fraud, reporting, and books and records rules. The SEC waived the disgorgement order but ordered a permanent bar based on his conduct and his incarceration on related criminal charges.
OUR TAKE: It is the CCO’s job to monitor others to prevent misconduct, but who watches the CCO? With unfettered access and knowledge, a CCO has a higher duty to follow and enforce the securities laws. Firms should also ensure that somebody reviews the CCOs personal dealings.