Compliance Official Settles SEC Claims Over Faulty Filings

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By Antoinette Gartrell

North Carolina-based chief compliance officer David Osunkwo agreed to pay $30,000 to resolve Securities and Exchange Commission allegations he caused two affiliated investment advisers to file registration forms that overstated their combined assets under management by more than $119 million ( In re Osunkwo , S.E.C., Admin. Proc. File No. 3-16463, 8/15/17 ).

Osunkwo, who didn’t admit or deny wrongdoing, also agreed to a one-year suspension from the industry.

Patricia Harned, chief executive officer of the Ethics & Compliance Initiative, a provider of independent research on workplace integrity, wasn’t surprised that the SEC took action against a compliance officer it saw as negligent or irresponsible. Even if the CCO’s conduct wasn’t willful, she told Bloomberg BNA, the “unfortunate reality” is that investment adviser Forms ADV are presumed to be accurate. If that’s not the case, according to the SEC, the compliance function has committed a securities law violation, Harned said. “It’s a matter of having the right internal controls in place” to be able to verify that the entity’s filings are accurate.

End Result

In 2015, the SEC sparked controversy by bringing separate lawsuits in close succession against two advisory firm CCOs. In the wake of the actions, then-Commissioner Daniel Gallagher, a Republican, cautioned the agency to “tread carefully” in suing compliance personnel. Top enforcement officials later said the allegations didn’t involve the exercise of good faith judgment, and that the commission was sensitive to the possible chilling effect of an enforcement action on internal compliance programs.

“The end result is that it has gotten much harder for certain industries, especially the financial services industry, to recruit compliance officers because their own personal liability is getting higher and higher,” Harned said. “Those people that assume the leadership position, assume a substantial responsibility when they’re attesting to the accuracy of the documents. It’s an unfortunate part of the risk of the role that they take on.”

SEC Chairman Jay Clayton hasn’t offered his views on suing compliance officials. He has said that where possible, he plans to pursue the individuals allegedly responsible for a corporation’s misconduct, rather than punishing shareholders by seeking a large corporate penalty.

The commission declined to comment.

To contact the reporter on this story: Antoinette Gartrell in Washington at agartrell@bna.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com

For More Information

To view the settlement order, visit: https://www.sec.gov/litigation/admin/2017/34-81405.pdf

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