Practical Insights for Compliance Officers [Webinar] - Gatekeeper Duty

Gatekeeper Duty

Mr. Cipperman will assess the most impactful regulatory developments of 2016, review results of the recent CCS survey of financial industry C-Suite opinion leaders, and give you his take on the fluid regulatory environment.This webinar was co-hosted with Todd Cipperman of Cipperman Compliance Services on Nov 17th


 You can download a full copy of the slides from this webinar.


Full video transcript available below:

I do want to touch on gatekeeper liability, if ever briefly because it was very interesting from a trending perspective. We’re seeing a lot of activity against the gatekeepers in the industry for breaches by their clients. There has been a couple of cases against fund administrators, one where a hedge fund administrator was charged, the Apex Fund Case, Apex Fund Services with in the eyes of the SEC ignoring clear indications of fraud by the client having to do with undisclosed brokerage account and unauthorized borrowing.

The charge was that the fund administrator was liable for aiding and abetting. Keep in mind, the fund administrator is not a registrant. Theoretically, the SEC has no jurisdiction. What they were saying they’re aiding and abetting a registrant’s violation. There is sort of a big case again this year where a fund administrator was charged with causing the violations of the auditor independence rules because the question there dealt with independence from the fund, not independence from the auditor.

It turns out one of the independent directors of a fund complex actually was doing consulting work with the auditor. Again, they named the fund administrator for that. There has also been some recent cases. There has also been some recent cases against audit firms involving independence. The big one that came out recently was E&Y that the personal relationships with engagement partners. One was actually a romantic relationship with the chief accounting officer. One sort of was excessive expenses with the CFO sharing vacation homes, and tickets, and dinners.

In fact, the connection between them was so strong that the auditor could no longer be independent, which I think was very interesting. It sort of brings up an interesting point for all third-party vendors, whether they be lawyers, compliance consultants. Can you actually have a relationship that’s so good that your work become compromised? Now, obviously, auditors have a different standard of care, but it’s something that a lot of vendors are paying close attention to.

It’s not just auditors. Chair White has said directors of funds are considered gatekeepers. They have an obligation to do due diligence on service providers. She suggested in areas like liquidity and valuation and cyber security that the SEC could bring enforcement actions against directors. We had predicted last year that there be cases against lawyers. There have been a couple of cases against lawyers, particularly the Shkreli Case for aiding and abetting Martin Shkreli’s violations of securities laws.

Also, there has been a case against, like I said, God forbid compliance consultants. The Parallax Case, he was said to not. He was an outside CCO who only spent about nine hours a month on the compliance program and they basically said he was aiding and abetting their compliance violations. Guys, I lost the slides on my screen so I don’t know if that’s endemic or just me, but I’ll keep going. Shane can you help me at all?


We are now on Polling Question #3 so if I read that out. Have you encountered heightened due diligence from service providers? We have 45% people said yes. 32% no. We have 24% unsure so interesting result there on the yes side carrying the day.

This webinar was co-hosted with Todd Cipperman of Cipperman Services LLC. To learn more visit

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