September 22, 2021

Volume XI, Number 265

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Compliance Officers’ Liability When Engaging and Remediating Problems at Investment Management Firms

Andrew Ceresney, the Director of the Division of Enforcement of the SEC, assured compliance officers that compliance officers would not be exposed to liability when compliance officers engage and remediate problems at investment management firms in a speech given in May 2014.  Mr. Ceresney reiterated that compliance personnel do not become supervisors solely because they provide advice to, or consult with, business line personnel.[1]  However, he clarified that the SEC will bring legal action against compliance officers, typically when the “SEC believes that legal or compliance personnel have affirmatively participated in the misconduct, when they have helped mislead regulators or when they have clear responsibility to implement compliance programs and wholly failed to carry out that responsibility.”  Mr. Ceresney then pointed out a case in which the SEC did bring legal action against a compliance officer.

CCO Knew About the Firm’s Decision to Violate Rules, Affirmatively Participated in the Violations and then Concealed the Violations from Regulators

Mr. Ceresney pointed out the Penson[2] case in which the SEC alleged that Penson’s chief compliance officer, Thomas R. Delaney, had direct knowledge that Penson’s procedures were resulting rule violations, but Mr. Delaney failed to take steps to bring Penson into compliance and affirmatively assisted in the violations.  Furthermore, the SEC alleged that Mr. Delaney concealed such violations in “numerous” communications with the SEC and FINRA.[3]  Included in the long list of Mr. Delaney’s misconduct was the fact that the SEC viewed that Mr. Delaney “consciously chose profits over compliance.”[4]

CCO Takeaways

  • CCOs should design compliance policies and procedures against known risks.

  • CCOs should investigate violations of compliance policies and procedures and take remedial measures to curtail future violations.

  • CCOs should be proactive and fully engage in the business to monitor against potential rule violations.


[1] Please see the SEC’s website for Frequently Asked Questions regarding Liability of Compliance and Legal Personnel.

[2] Please see http://www.sec.gov/News/PressRelease/Detail/PressRelease/1370541860014.

[3] Please see http://www.sec.gov/litigation/admin/2014/34-72185.pdf.

[4] Id.

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume IV, Number 266
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About this Author

Thomas M. Devaney, Corporate Attorney, Sheppard Mullin Law firm
Partner

Mr. Thomas Devaney is a partner in the Corporate Practice Group in the firm's New York office.

212-634-3042
Jung Son, corporate, investment, finance, attorney, Sheppard Mullin, law firm
Partner

Jung Yeon Son is a partner in the Corporate Practice Group in the firm's Palo Alto office. Ms. Son’s practice is focused on the formation and operation of private investment funds, including private equity, venture capital and hedge funds, as well as on advising companies and sponsors with respect to mergers & acquisitions, securities offerings, corporate governance, SEC reporting, and general corporate matters. 

650-815-2676
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