Law 360: SEC’s Stanford Case A Chance To Clarify Compliance Duties


Law360, New York (February 5, 2016, 10:30 PM ET) — Compliance officers who worry they have an enforcement target on their back may soon get some clarity — and perhaps reassurance — from the U.S. Securities and Exchange Commission when it rules on a case involving convicted Ponzi schemer R. Allen Stanford’s former top compliance manager.

On Monday, the SEC is scheduled to hear oral arguments in an appeal by Bernerd Young, a former regulator who was the chief compliance officer at Stanford Group Company Inc. at the time the $7 billion fraud was exposed. He is contesting an initial decision by an SEC judge, who said he should pay more than $850,000 in penalties and disgorgement after he allegedly turned a blind eye to signs of Stanford’s massive scheme.

The case comes to the commission after more than two years on appeal, at a time when the SEC has been beset with fundamental, philosophical questions about when and whether the internal cops at securities firms should be held responsible for failings and misdeeds that happen under their watch.

The issue of compliance officer liability has stirred a major debate. Some in the industry, including former SEC member Dan Gallagher, have said recent cases against compliance officials have gone too far, and that in turn could put a chill on hiring and retaining the front-line force whose job is to help their firms follow the rules and stay out of trouble.

…”It would be helpful for the industry to have some brighter lines around when compliance officers are held accountable,” said Ben Brown, managing director at Patomak Global Partners and previously a counsel to Gallagher, the former SEC Commissioner.

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