SEC Fines and Bars CCO From the Funds Industry for Compliance Failures and Deceiving OCIE

The SEC recently settled enforcement proceedings against a fund manager and its CCO for failing to implement written policies and procedures the firm adopted to address deficiencies in its supervisory system that were detected during a FINRA investigation. The CCO subsequently altered documents provided to the SEC during an examination to give the misleading appearance that the compliance procedures had been followed. The SEC is generally reluctant to deter qualified people from taking on the role of CCO, and it is unusual for CCOs to be charged personally for compliance failures. Nonetheless, the enforcement action against the CCO shows that the SEC is willing to hold CCOs personally liable when appropriate, while also offering a broader lesson for private funds and their CCOs. This article summarizes the SEC’s cease-and-desist order (Order) and its key takeaways, while also providing insights from attorneys about the most relevant aspects of the Order for PE sponsors. For coverage of SEC actions against officers of private funds, see “SEC Fines PE Sponsor; CEO and CFO for Improper Principal Transactions and Expense Allocations” (Jun. 11, 2019); and “Absence of Harm No Defense Against Conflicts of Interest: SEC Issues Lifetime Bar From Compliance Work to CCO” (Sep. 13, 2018).

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