THE U.S. Securities and Exchange Commission cited lax code of ethics and employee personal trading policies in administrative proceedings brought against a chief compliance officer (CCO) and president of a Denver, Colorado, investment firm (11 June 2014).
The SEC said Thomas E Meade, a 71-year-old registered investment adviser with 13 years as president of Private Capital Management (PCM), should have mitigated against inherent risks associated with an employee, Drew Peterson, whose father was also a personal friend of the CCO.
The relevant period for the SEC proceedings was 1 January 2009 through to 31 July 2012, a 31 month period, after which Meade failed to investigate insider trading by Peterson junior and Meade was overly reliant on employee self-reporting of SEC violations.
The commission maintained that as acting CCO, it was Meade's responsibility to ensure that all policies were adhered to with adequate real-time supervision of portfolio managers and post trade review of all activity.
The SEC's stinging criticism, gleamed from documents available online, claimed Meade 'failed to prevent, detect or respond to insider trading by a former PCM, Inc. Vice President, Drew Peterson'.
The commission's administrative proceedings claimed, 'Meade was aware of the unique risks for misuse of material non-public information by Peterson due to Meade’s personal relationship with Peterson’s father, who served on the board of at least one public company. Yet, Meade failed to design PCM Inc.’s written compliance policies and procedures in light of these insider trading risks."
Todd Cipperman, in his blog noted how a robust compliance policy and monitoring regime can act as a shield against SEC action when employees are guilty of wrongdoing but he also noted how lax compliance policies become a sword which the SEC will wield against a chief compliance officer for systemic failures to mitigate against non-compliance risk.