SEC Brings First Action Under Chief Compliance Officer Rule


SEC Brings First Action Under Chief Compliance Officer RuleThe SEC recently sanctioned a former portfolio manager  under Rule 38a-1(c) of the Investment Company Act, which prohibits misleading and obstructing a chief compliance officer (CCO).  Carl Johns, the portolio manager in question forged documents, concealing his failure to report personal trades and misleading the firm’s CCO.

According to the SEC, Johns concealed the trades in quarterly and annual trading reports that he submitted to the CCO  by altering brokerage statements and other documents that he attached to the reports.  Johns later tried to cover up  his misconduct by creating false trade pre-approval from the firm’s CCO and backdating trade confirmations.

To make things worse, Johns allegedly misled the firm’s CCO in her investigation of his trading activities, making false statements  and physically altering hard copy files.

“Securities industry professionals have an obligation to adhere to compliance policies, and they certainly must not interfere with the chief compliance officers who enforce those policies,” said Julie Lutz, Acting Co-Director of the SEC’s Denver Regional Office.  “Johns set out to cover up his compliance failures by creating false documents and misleading his firm’s CCO.”

To resolve the case, Johns agreed to pay more than $350,000 and be barred from the securities industry for at least five years. 

Topics:  Chief Compliance Officers, Compliance, Enforcement Actions, Investment Company Act of 1940, Misleading Statements, Portfolio Managers, SEC

Published In: Business Torts Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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