Compliance Professionals Beware: Recent SEC Case Highlights Risk of Personal Liability
The SEC recently fined an outsourced chief compliance officer $30,000 and suspended him from holding any position in the securities industry for one year after he allegedly submitted inaccurate information in a filing for two affiliated investment advisory companies. According to the SEC’s August 15 order, the consolidated Form ADV filed by David I. Osunkwo in April 2011, which reflected a merger between Aegis Capital, LLC and Circle One Wealth Management, LLC, materially overstated the assets under management (AUM) and total number of clients of the combined firm.
The Form ADV reported a combined AUM of $182 million and 1,289 combined advisory accounts, which, according to the SEC, overstated the AUM by over $119 million and the advisory accounts by over 1,000. In holding the CCO personally liable, the SEC faulted him for improperly relying on estimated figures provided by the combined firm’s chief investment officer, “without taking sufficient steps to ascertain their accuracy,” and for listing the CIO as having certified the figures when, in fact, he had not.
According to a September 7 Reuters article, “the action against Mr. Osunkwo should not come as a surprise to CCOs and industry watchers—the regulator is far from breaking new ground here in holding CCOs accountable for failures.” In addition to discussing Mr. Osunkwo’s case, the Reuters article also cites survey data on the perceived risk of personal liability, discusses the SEC’s past statements regarding CCO culpability and provides useful advice for compliance professionals seeking to shield themselves from personal liability.