By Yin Wilczek
May 12 --To ensure a robust compliance environment, the Securities and Exchange Commission must provide “additional certainty” regarding its position on supervisory liability for legal and compliance personnel, Commissioner Daniel Gallagher said May 12.
In a speech at an SEC training event in Washington, Gallagher said he was “especially pleased” that the commission staff issued guidance last year--in the form of “frequently-asked questions”--on the supervisory liability that may arise under the 1934 Securities Exchange Act in connection with the role of chief compliance officers and other legal and compliance personnel at broker-dealers.
The speech comes amidst concerns--following recent speeches by SEC Chairman Mary Jo White--that the commission is actively targeting compliance and legal professionals.
The SEC's FAQs--issued in September--was the first commission guidance in the wake of In re Urban, a 2010 administrative proceeding in which the SEC alleged that Theodore Urban, the then-general counsel of Ferris Baker Watts Inc., failed to reasonably supervise a broker engaged in a market manipulation scheme (28 CCW 308, 10/9/13).
Under 1934 Act Section 15(b)(6), the SEC may institute proceedings against a “supervisor” associated with a broker-dealer “if someone under that person's supervision violates” the federal securities laws, the Commodity Exchange Act, or Municipal Securities Rulemaking Board rules.
After being absolved by an administrative law judge, the SEC's claims against Urban were ultimately dismissed because the two members participating in the decision could not agree on an outcome (27 CCW 36, 2/1/12).
In his May 12 remarks, Gallagher told the audience that there is language in the 1940 Investment Advisers Act that is “nearly identical” to 1934 Act Section 15(b)(6).
The SEC must ensure that its rules on liability for failure to supervise “do not act as a deterrent to in-house legal and compliance officers, discouraging them from departing from their clearly delineated roles,” the commissioner continued. “To do so, we need to provide guidance that is as clear as possible on our position on supervisory liability for legal and compliance personnel.”
Although the SEC has not issued similar guidance regarding supervisory liability for investment adviser personnel, some commentators have suggested that the FAQs pertaining to broker-dealers may also apply to investment advisers.
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The full text of Gallagher's speech is available at http://www.sec.gov/News/Speech/Detail/Speech/1370541797850#.U3EZf1dWhwQ.
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