The SEC recently issued an opinion upholding a FINRA disciplinary action that found that the chief compliance officer (CCO) of a broker-dealer failed to establish a reasonable supervisory system for the review of electronic correspondence; reasonably review electronic correspondence; and report a relationship with a statutorily disqualified person. This first article in our two-part series analyzes FINRA’s disciplinary action against the CCO and explores what the SEC’s opinion says about personal liability for CCOs and CEOs, among other things. The second article will examine the key takeaways from this case, including implications for personal liability for fund manager CCOs and CEOs. For other cases involving CCO liability, see “Absence of Harm No Defense Against Conflicts of Interest: SEC Issues Lifetime Bar From Compliance Work to CCO
” (Sep. 13, 2018); “SEC Settlement Highlights Circumstances in Which Hedge Fund Managers Must Disclose Conflicts of Interest
” (Apr. 23, 2015); and “SEC Charges Two Houston-Based Advisory Firms, Including a Hedge Fund Manager, With Principal Transaction, Custody Rule, Compliance Rule and Code of Ethics Violations
” (Jan. 30, 2014).