What a Recent SEC Opinion on a FINRA Disciplinary Action Says About CCO and CEO Liability (Part Two of Two)

After the SEC brought several enforcement actions against chief compliance officers (CCOs) in 2014 and 2015, CCOs protested that they were being unfairly targeted by the SEC and held to an unreasonable standard. To alleviate those concerns, Andrew Ceresney, then-Director of the SEC’s Division of Enforcement, gave a speech that reiterated the SEC’s support for CCOs and its intent to avoid charging CCOs who have exercised their compliance duties in good faith. See “SEC Enforcement Director Assures CCOs They Need Not Fear SEC Action Absent Wrongdoing” (Nov. 19, 2015). A recent SEC opinion upholding a FINRA disciplinary action against a broker-dealer’s CCO seems to reinforce the SEC’s stance on CCO liability and suggests that CEOs may also face personal liability in certain circumstances when CCOs fail to fulfill their duties. This second article in our two-part series examines the key takeaways from the SEC’s opinion on FINRA’s disciplinary action against the applicable CCO, including implications for personal liability for fund manager CCOs and CEOs. The first article analyzed the FINRA disciplinary action and explored the SEC’s opinion. For additional insight from SEC officials on CCO liability, see “Commissioner Gallagher’s Dissent in SEC Enforcement Action Against Hedge Fund Manager Misses the Mark” (Jul. 30, 2015); “SEC Commissioner Issues Statement Supporting Hedge Fund Manager Chief Compliance Officers” (Jul. 16, 2015); and “SEC Commissioner Speaks Out Against Trend Toward Strict Liability for Compliance Personnel” (Jun. 25, 2015).

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