Enforcement Action for Illegal Cross-Trading (part 3 of 7)



On November 17th, Todd Cipperman spoke on the topic of "The Evolving Regulatory Landscape - Practical Insights for Compliance Officers" at a webinar co hosted by MyComplianceOffice and Cipperman Compliance Services LLC. This is the third post of a seven part series which will address some of the topics covered by Todd during the webinar. You can watch videos of that webinar here.

The SEC fined and censured a fund manager because its under-resourced compliance department allowed unlawful cross-trading and principal trading.  The SEC charges that the firm engaged in illegal cross-trading and principal trading between registered funds and other affiliated clients by using an inter positioned broker as part of pre-arranged transactions.  Although the firm had relevant written policies and procedures, according to the SEC, “the individuals working on cross trading within [the firm’s] compliance department were under qualified, under resourced, and required additional training and resources to effectively implement [the] trading restrictions.”  The SEC faulted the firm, and not the compliance department, because “Senior members of the compliance department raised the need for additional compliance resources on multiple occasions to … senior management” but those requests were not met.  Much of the relevant monitoring was delegated to a “low-level administrative assistant” because of heavy compliance workloads. 

OUR TAKE: The SEC will hold management accountable for failing to properly fund the compliance function, especially after the compliance department has informed management that more help is needed.  As a guide, we recommend that firms spend no less than 5% of revenues or 7% of operating costs on compliance infrastructure, including personnel and technology.


Author of post: Todd Cipperman, Cipperman Compliance Services LLC

This is the third post in our seven-part series following a webinar with Todd Cipperman on "The Evolving Regulatory Landscape - Practical Insights for Compliance Officers" . Subscribe to get notified of part 4, "SEC Fines 13 Advisers for Failing to Verify Third Party’s Performance (In re AssetMark et. al.; 8/29/16)".

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