Part of the problem, the Commissioner said, is that the compliance rule itself is not a model of clarity and “offers no guidance as to the distinction between the role of CCOs and management in carrying out the compliance function.”  He said that the SEC should not resolve this uncertainty through enforcement actions.

While acknowledging that CCOs should be held accountable for violations of the federal securities laws, he said that the SEC should strive to avoid “perverse incentives” that will flow from targeting CCOs who are “willing to run into the fires that so often occur at regulated entities.”  The SEC, he said, should consider whether to amend Rule 206(4)-7 or provide guidance to clarify the roles and responsibilities of CCOs so that CCOs are not held accountable for the misconduct of others.

In a speech on June 29, 2015, Commissioner Luis Agular said that Commissioner Gallagher’s statement has left the impression that the SEC is too harsh with CCOs, and that CCOs are “needlessly under siege” from the SEC.”  This dialog, he said, “is unhelpful sends the wrong message, and can discourage honest and competent CCOs from doing their work.”  The cases that the SEC has brought against CCOs, he said, do not “signify the beginning of nefarious trend” to targeting CCOs, but rather involve “egregious misconduct” of CCOs.

Both Commissioners found some common ground:  they agree that CCOs play a vital role in protecting investors.