Compliance Bricks and Mortar for May 23

These are some of the compliance-related stories that recently caught my attention.

SEC Enforcement Director: What Empowered Compliance Looks Like by Jaclyn Jaeger in Compliance Week

“Companies that have done well in avoiding significant regulatory issues typically have prioritized legal and compliance issues and developed a strong culture of compliance across their business lines,” said Ceresney. “I’ve found you can predict a lot about the likelihood of an enforcement action by asking a few simple questions about the role of the company’s legal and compliance requirements:

• Are legal and compliance personnel included in critical meetings?
• Are their views sought and followed?
• Do legal and compliance officers report to the CEO, and have significant visibility to the board?
• Are legal and compliance departments viewed as important partners in the business, and not simply as support functions, or a cost center?

SEC officials seek clarity on compliance officers’ liability by Sarah N. Lynch

At separate conferences, Securities and Exchange Commission members Kara Stein and Daniel Gallagher called for the agency to provide more clarity, noting many officers fear they will become the subject of an enforcement action.

Financial Literacy by Alex Tabarrok in Marginal Revolution

Only about a third of Americans answer all three questions correctly (and that figure is inflated somewhat due to guessing). The Germans and Swiss do significantly better (~50% all 3 correct) on very similar questions but many other countries do much worse. In New Zealand only 24% answer all 3 questions correctly and in Russia it’s less than 5%.

Second Circuit Reverses SEC Market Timing Verdict by Thomas O. Gorman in SEC Actions

The Second Circuit reversed a jury verdict in favor of the SEC in a market timing case, concluding that there was no evidence to support it. Specifically, the Court found that the “SEC ultimately succumbs to its strategic choice at trial to pursue a theory of scienter or nothing. Its entire jury presentation was premised on the idea that [Defendant] O’Meally violated Section 17(a) through intentional conduct. The SEC’s summation relied solely on intent and recklessness; theories rejected by the jury. And as to negligence, the SEC never introduced testimony or any other evidence on the appropriate standard of care against which a jury could measure O’Meally’s conduct.” This was “fatal” to its case. SEC v. O’Meally, No.. 13-213 (2nd Cir. Decided May 19, 2014).

What Kills You and Your Investments by Barry Ritholtz in Bloomberg View

You don’t understand risk.

I don’t mean you, in your professional capacity. I mean you, the human being whose brain is desperately trying to keep you alive. An endless procession of mortal threats are trying to end your particular genomic variation, forcing your brain to respond first and think later.
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Let’s look at some of the world’s top predators as an example of risk in the modern world.

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Image is from GatesNotes: The Deadliest Animal in the World