In an article published on August 18, 2015, Tom Potter provides analysis on the recent decision by a U.S. Securities and Exchange Commission (SEC) administrative law judge (ALJ) to dismiss an SEC enforcement case against a former compliance officer who had aided and abetted her firm's books-and-records violations. The decision to dismiss the case and decline to impose any sanctions against Judy Wolf, a former Wells Fargo Advisors compliance officer, continues the ongoing debate over proper balance for enforcement actions against compliance officers. While the SEC has not been shy about charging compliance officers for securities violations, many oppose the practice, including Commissioner Daniel Gallagher. Gallagher claims that such enforcement blurs the lines between the chief compliance officer's function of administering compliance programs and the business-line obligation to implement them (through supervision). In the case of Judy Wolf, ALJ Cameron Elliott supported Gallagher's opinion, saying "there is a real risk that excessive focus on violations by compliance personnel will discourage competent persons from going into compliance, and therefore undermine the purpose of compliance programs in general."

In the article, Potter offers five key takeaways from this case and decision:

1. The issue (where is the appropriate line for enforcement actions against compliance personnel?) is clearly framed and on the table;

2. The public debate is lively among the commissioners;

3. The compliance community's fears have been heard;

4. The ALJs are weighing in on the policy debate - beyond the narrow facts of a given case;

5. ALJ Elliott may be willing to push the issue by his sort of "jury nullification" decision in Wolf; and, whether Enforcement appeals to the commission and, if so, the commission's review of ALJ Elliott's decision will reveal the next stage of the debate.

 

For the full article, please click here.