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CCO Used Position to Aid/Abet Brothers’ Securities Fraud Scheme

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.


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