A recent SEC enforcement action asserts the imperative of having an effective and empowered chief compliance officer (CCO) as well as effective compliance policies and procedures – and actually following those procedures. The SEC alleged that an investment adviser and several of its principals failed to provide sufficient support and resources to its CCO, which led to certain compliance failures by the firm. The SEC also claimed that the adviser neglected to seek best execution for clients by failing to move eligible clients into a certain share class. This article summarizes the facts giving rise to the enforcement action; the SEC’s specific charges; and the settlement terms. This settlement comes at a time when there is the sense in the industry that CCOs are increasingly in the SEC’s cross-hairs. See “SEC Commissioner Issues Statement Supporting Hedge Fund Manager Chief Compliance Officers
,” Hedge Fund Law Report, Vol. 8, No. 28 (Jul. 16, 2015); and “SEC Commissioner Speaks Out Against Trend Toward Strict Liability for Compliance Personnel
,” Hedge Fund Law Report, Vol. 8, No. 25 (Jun. 25, 2015). For a general discussion of CCO duties and potential liabilities, see “Five Steps That CCOs Can Take to Avoid Supervisory Liability, and Other Hedge Fund Manager CCO Best Practices
,” Hedge Fund Law Report, Vol. 8, No. 12 (Mar. 27, 2015); and “Dechert Partners and Venor Capital General Counsel Describe the Scope of Supervisory Liability for Hedge Fund Manager Personnel
,” Hedge Fund Law Report, Vol. 7, No. 26 (Jul. 11, 2014).