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Day: August 2, 2018

CCO Blamed for Signing Certifications that Facilitated Unlawful Securities Lending


The SEC censured and fined the Chief Compliance Officer of a broker-dealer for signing certifications that she knew, or should have known, were inaccurate, thereby enabling her firm to engage in unlawful securities lending transactions.  The CCO signed certifications to third party depositaries that confirmed her firm complied with certain ADR pre-release agreements that required that her firm hold ordinary shares that evidenced ADRs.  The SEC maintains, however, that the CCO knew the firm did not comply with those agreements because she participated in drafting the firm’s procedures for acquiring pre-release ADRs and knew that the firm did not comply with the pre-release agreements.  The SEC charges the CCO with causing her firm’s violations of the Exchange Act’s antifraud provisions.

OUR TAKE: Compliance officers should avoid signing certifications that facilitate securities transactions.  If the situation requires a certification, a CCO must conduct adequate due diligence to ensure the accuracy of all statements made.  Also, we would recommend that a CCO obtains back-up certifications from others in the organization.