In a June 2015 speech, then-SEC Commissioner Luis A. Aguilar advocated for the support of chief compliance officers (CCOs) by investment advisers given the “vital role” that CCOs play. According to the ACA Compliance Group’s 2018 Alternative Fund Manager Compliance Survey
, 70 percent of fund manager respondents said they receive sufficient compliance resources, leaving 30 percent at risk that failing to provide sufficient resources and support to their CCOs could undercut their compliance efforts and result in violations and enforcement actions. Recent related SEC enforcement actions illustrate this risk, as an investment adviser and its former CEO both settled charges relating to the adviser’s failure to perform adequate due diligence and monitoring of certain investments contrary to its representations to clients, as well as the CEO’s failure to address known resource deficiencies in the adviser’s compliance program. This two‑part series explains why it is important for investment advisers to provide adequate resources to support their CCOs and compliance programs. This first article details the compliance failures in the aforementioned enforcement actions. The second article
will provide the key takeaways for investment advisers and their CCOs from these actions. For other enforcement actions in which insufficient compliance resources played a role, see “Lessons Private Fund Managers Can Learn From U.S. Bancorp’s Settlement of AML Violations
” (Apr. 26, 2018); and “SEC Enforcement Action Shows Fund Managers May Be Liable for Failing to Adequately Support Their CCOs
” (Jul. 23, 2015).