Reliance on a Compliance Consultant is not a Defense
IN THE MATTER OF THE ROBARE GROUP.
A registered investment adviser and its principal, owner and chief compliance officer were found to have failed to disclose to the adviser’s clients a material conflict of interest whereby the firm received compensation from the custodian of its clients’ accounts for maintaining client assets in certain investments. A principal, owner and associated person caused these violations. The respondents were ordered to cease and desist as well as civil penalties of $50,000 for each respondent.
THE USE OF COMPLIANCE CONSULTANTS
The respondents testified that outside compliance consultants advised the firm about disclosures it was required to make. However, no substantive testimony or evidence was submitted to prove that the arrangement between the firm and the custodian was disclosed to the consultants. The respondents argued that they did not act negligently because they relied upon “experienced and competent compliance consultants to help ensure that they complied completely with their disclosure requirements.”
NO DEFENSE OF RELIANCE ON COMPLIANCE CONSULTANTS
The Commission noted that the respondents did not cite any case recognizing a defense of reliance on compliance consultants. The Commission does however recognize a defense of reliance on counsel.
In order to establish a defense of reliance on counsel, a defendant must demonstrate that (1) a complete disclosure was made to counsel; (2) advise was sought on the legality of the defendant’s conduct; (3) counsel determined that the defendant’s conduct was legal, and (4) defendant relied on that advise in good faith.
CONCLUSION
Compliance consultants are a great resource. Unfortunately, they do not provide the same protections as advice from counsel. Protect your business by hiring competent counsel. It may be what saves you from a $50,000 fine.
Author Bio
Leila Shaver is the Founder of My RIA Lawyer, a law firm that provides compliance and legal consulting for financial institutions. With extensive experience as a securities attorney and compliance expert, she has served as Chief Compliance Officer and General Counsel to RIAs, BDs, and TAMPs with billions in assets under management.
Leila understands the challenges RIAs face and is committed to helping RIAs streamline their processes, mitigate risks, and ensure compliance with regulatory requirements. She received her Juris Doctor from Atlanta’s John Marshall Law School and is a West Georgia Young Lawyers’ Association member. Leila has received numerous accolades for her work, including the Carroll County Bar Association’s Outstanding Young Lawyer Award in 2017.