From One CCO to Another: Don’t Lie to the SEC

Every once in a while, I think it’s important to get back to the basics. Since the adoption of the compliance rules in 2004, the Securities and Exchange Commission staff has repeatedly stated that the intent of the rules were not to hunt CCOs. Great pains have been made to enlist CCOs support in ensuring that advisers demonstrate a strong compliance culture. SEC actions against CCOs have been rare and usually related to clear wrongdoing, like lying to the SEC.

On September 17, 2020, the SEC took action against a dually-registered investment adviser and broker dealer and its former CCO[1] for a string of compliance failures relating to the firm’s trading practices. The firm employed an active trading strategy in which clients paid commissions on a per-trade basis (SIDE NOTE: advisers should be very careful about such arrangements as they can often conflict with an adviser’s fiduciary duty). The firm claimed to have surveillance of commission costs and turnover rates as a vital part of its compliance program. During an exam of the firm, FINRA found that the firm did not have any written procedures relating to the surveillance program and was not able to evidence any such review.

As a result of the FINRA findings, the firm amended its written procedures to include procedures related to customer transaction reviews, with the responsibility for such reviews resting with the CCO. As with most written procedures, they are only of value when followed. No such reviews were conducted and the reports that were identified to support a review didn’t even contain the necessary information.

The SEC staff later conducted a review of the firm and requested records supporting such reviews. In response to the request, the firm, through the CCO produced reports that had been altered by the CCO to give the appearance that a timely review was conducted. The CCO provided the exam staff with reports in which she “whited out” the date printed information from the report and made handwritten notations to make the review appear contemporaneous with the data. During the SEC’s enforcement investigation, the CCO again produced documents altered with white out. In her sworn testimony, the CCO finally admitted that these reports were altered. As a result, the firm was fined $1.7 million and CCO was fined and barred from the industry.

The moral of the story. DON’T. EVER. LIE. TO. THE. SEC. EVER.

To speak with one of our regulatory experts, email us at

[1] In re: Gilder Gagnon Howe & Co. LC and Bonnie M. Haupt; IA Release 5582; September 17, 2020.

Subscribe to CSS Blog

CSS frequently publishes blog posts which are written by our team from their observations in the field, at conferences and through experiences with compliance professionals. These posts are designed to further knowledge and share industry best practices. Topics run the gamut, including Form ADV, cybersecurity, MiFID II, position limit monitoring, technology challenges and more. Complete and submit the brief form below to receive notifications when we publish new content.

Latest Content

Texas Outlaws and a Silver Bullet: Position Limits in the USA

In this first installment on position limits, Regulatory Guidance expert Greg Hotaling surveys the current landscape of position limits imposed for U.S.-listed commodity derivative holdings, which can affect investment firms and other speculative investors regardless of where they are based. Stay tuned for coverage of EU position limits in the next edition. “Who shot J.R.?!” … Continued

FAQs From the Cyber Desk

Cybersecurity is a fast-moving target, so it is not uncommon for firms to have questions when it comes to assessing and understanding their cybersecurity risks. Here at CSS we receive a lot of cybersecurity questions, so we thought we would take the time to answer 10 of the most common Frequently Asked Questions. (1) What … Continued

EU Position Limits: Born in the USA?

This is the second installment of Regulatory Guidance Expert Greg Hotaling’s blog on position limits, this time addressing EU-listed commodity derivatives and related products.  As always, keep in mind that these limits can apply to asset managers, and other market participants, regardless of where they are based. In 2009, the European Union’s first comprehensive position … Continued