The Girl Who Played with SEC and FINRA Fire: SEC and FINRA Disciplinary Actions Against In-House Counsel and Chief Compliance Officers (June 2011 – June 2012)


Originally published in Practical Compliance & Risk Management For The Securities Industry • September–October 2012.

“He was sitting in a car with the window rolled down. She ran to the car, poured gasoline through the window, and lit a match. It took only a moment. The flames blazed up.”

In the international bestseller The Girl Who Played With Fire (the second book in Stieg Larsson’s Millennium Trilogy), Mikael Blomkvist, a journalist, plans a major exposé of the international human trafficking world while also trying to track down Lisbeth Salander, his former investigator, who is on the run because she is being framed for murder (but not the murder of the gentleman in the car because he survived) (the actual murder victims were shot, not set on fire). While slightly less risky than these endeavors, the positions of in-house counsel and chief compliance officer (CCO) for a broker-dealer (BD) or investment adviser (IA) can involve “putting out fires” of a different sort, providing advice and telling people what to do (or what not to do) and how to do it (or how not to do it), but without the power to enforce their decisions or carry out their message. Because of these key functions, their conduct is often carefully scrutinized by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), resulting in some in-house counsel and CCOs getting “burned” by disciplinary actions.

Th is article, like its predecessors, analyzes recent SEC and FINRA actions against in-house counsel and CCOs to highlight examples of conduct that regulators have identified as sanction-worthy, in the hope that others may avoid “going down in flames” in a similar manner. From June 2011 through June 2012, the SEC and FINRA brought disciplinary actions against in-house counsel and CCOs for a range of conduct, including: (1) playing a role in their firms’ inadequate supervisory systems, inadequate anti-money laundering (AML) compliance systems and inadequate due diligence of private placement investments; (2) failing to supervise; (3) aiding and abetting underlying violations by their firms; (4) providing inaccurate certifications and reports to regulators; (5) failing to meet reporting obligations; (6) playing a role in books and records violations; (7) failing to abide by the terms of settlement agreements with regulators; and (8) failing to appear for testimony.

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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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