GRC Professional - February 2015 Edition | Page 13

for Spencer Edwards, for his failure to supervise
two employees who had sold unregistered stock.
Spencer Edwards’ policies and procedures named
the CCO – that is, Price – as the person responsible
for, “anything of a legal nature that was part of our
procedures.” Although vague, this grant of supervisory responsibility sufficed to hold him liable for
his subordinates’ actions. Price was barred from
association with any broker or dealer in a supervisory
capacity and ordered to pay $55,000 in civil penalties.
There is some good news. Griffin says a CCO
who discharges his or her supervisory responsibility
adequately can escape liability. The case involving
Theodore Urban highlighted this. Urban served as
the general counsel, executive vice president and
member of the board of directors of Ferris Baker
Watts, a registered broker-dealer and investment
adviser. Ferris Baker Watts had hired Stephen
Glantz, who later plead guilty to securities fraud
charges arising from his involvement in a stock
manipulation scheme.
“The SEC pursued Urban under the theory that
Urban was Glantz’s supervisor, and thus bore some
responsibility for Glantz’s actions. Eventually,

the administrative law judge dismissed the case,
because Urban had approached his compliance
department and the firm’s management regarding
his suspicions about Glantz, and had even recommended terminating him, although the board
vetoed the recommended termination.”

There are a lot
of compliance
officers who
notice a problem
and who follow
up a little
bit, and then
let it drop.

Aggressive regulators
Griffin says regulators defend their aggressive
stance by saying that, if compliance professionals
were doing their job properly, these breaches would
have never happened. They go even further i n some
cases and argue that, “not only were you asleep at
the wheel, but you were also participating in the
wrong doing.”
Griffin also warns that what the US government
considers as participating in the wrong doing, may
just be what you consider to be a simple oversight.
“You have cases were a compliance officer did not
focus as intently on a problem as they should have,
and in addition to prosecuting the person who did
the misdeed, they are also prosecuting the compliance officer and holding them liable.”
Griffin says compliance officers need to protect
themselves. “There are two things I recommend compliance officers do. The first is that when you identify
a problem, or potential problem, get out in front of it.
Investigate problems aggressively and thoroughly. Ask
questions and follow up on those questions.”
`“The second thing is to document every step of
your investigation. The government will look for
evidence that you thoroughly investigated a potential problem. For your sake, and your company’s,
you need that evidence. As a compliance officer,
you need to be able to prove you thoroughly and
properly investigated a matter.”
Griffin says one of the issues compliance officers
face is that they lack the authority to fire or demote
people. This means they also lack that control to
change behaviour. But the US Government does
X
not see it that way.
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