Two days in a row of compliance officers making the mistake of faking compliance documents. Yesterday it was a compliance officer who faked compliance reviews. Today, its a compliance officer who faked employee securities transaction approvals.
According to the SEC Order, Suzanne Ballek was the Chief Compliance Officer of Inland Investment Advisors, part of the Inland Real Estate Group. (The firm is unnamed in the Order.)
In late 2022, the SEC opened an examination of the firm. As part of that examination, Exam Staff requested information related to the firm’s pre-clearance trading policy. Ms. Ballek produced the documents, which included some pre-clearance trading forms.
Ms. Ballek created a “Securities Transaction Request Form” as a method to document the request and approval of access persons’ securities transactions. The access person would fill out the form and sign it, and Ballek would sign it as well to indicate her approval. The form was not required by the Code of Ethics (and not by SEC rule), Ballek developed it to evidence compliance with access person approval processes. However, in practice, In practice, the Securities Transaction Request Forms were often not completed until after the transactions were made. So they were not actually evidencing “pre-approval.”
Before providing these forms to the SEC Exam staff, Ms. Ballek modified the dates and/or filled in missing information on 170 of the forms. Which in practice, many had been filled out after the trades were completed and after any oral trade authorizations were provided. In some cases where there had been no form completed for a trade, Ms. Ballek created a form and affixed the trader’s signature to it without the trader’s knowledge or authorization before providing the forms to the Exam staff. Apparently, Ms. Ballek used white-out on some forms.
When Exam Staff questioned Ballek about the apparent alterations to the Securities Transaction Request Forms, she claimed that the portfolio manager had filled out the forms incorrectly and that, at the time the forms were submitted to her, she made the changes. She did not inform Exam Staff that she modified the forms in response to their request or that she had created forms in instances where no form existed.
Exam staff hates being lied to and hates getting faked documents. Even worse than not having created the documents. The result is a $40,000 fine.
I get concerned about CCO liability. It’s not a great feeling when you see the SEC bringing cases against compliance officers. But there are two areas that the SEC has made clear that a CCO will be subject to liability: 1. the CCO engages in the wrongdoing and 2. the CCO attempts to cover up the fraud. This case seems to fit into both of these categories.
Sources: