An SEC commissioner who warned of potential unintended consequences when Wall Street’s regulator charges a firm’s chief compliance officer is applauding a recent case that did just that.
The stamp of
In a July 1 statement, Peirce wrote that the SEC’s settlement of a case against a former chief compliance officer for Hamilton Investment Counsel — an RIA in Dacula, Georgia, that was co-owned by a barred former LPL Financial advisor — was “sound.” Under that June 30 settlement, former compliance head Jeffrey Kirkpatrick and Hamilton Investment Counsel collectively settled
“Because Mr. Kirkpatrick was both a principal and the chief compliance officer CCO of [Hamilton], the action against him merits close consideration,” Peirce wrote. “Here, a charge against the CCO, who was also a principal of the firm, helps fulfill the SEC’s regulatory goals; he had identified weaknesses in the compliance program, was in a position to address them, yet he did not do so.”
Industry consequences
Financial advisors often act as their practice’s chief compliance officers when operating their
Peirce and industry stakeholders such as the Securities Industry and Financial Markets Association are calling for the Wall Street regulator to adopt a “a properly calibrated” framework that they say would keep an entire firm accountable to the rules, rather than place all responsibility on a single person. Peirce wrote that she wants to avoid “unjustified liability for CCOs based on the firm’s failings or the failings of others at the firm.” She and other critics have argued that tying enforcement cases against a person for the conduct of others could deter well-qualified candidates from seeking chief compliance roles in financial services.
The statement of approval from Peirce, who was appointed by President Trump and has cautioned against
Still, he added that statements alone aren’t going to root out all of the harmful conduct in the industry.
“People always say, ‘Well, how come Wall Street keeps getting away with it and keeps doing it?’ Because it’s a cost of doing business,” Schulz said. “I just wish they did more of it and were stronger and had more strong language and really got some teeth into their whole thing — but they don't.”
Related but separate cases
Separate from the SEC’s fraud case against the barred broker, both the RIA and the chief compliance officer agreed to pay a combined $165,000 to resolve the regulator’s supervisory matter. Hamilton was a standalone RIA that used LPL as its brokerage, a dual setup used by hundreds of “hybrid RIA” practices of varying sizes across the firm. With the involvement of an outside business activity that was allegedly fraud, the barred broker’s case closely resembles other ones in the industry
David Chase, a lawyer representing Hamilton and Kirkpatrick, noted that neither of them face any charges in the separate fraud case against Hollifield. The hybrid RIA managed $196 million in client assets in November 2021, according to the SEC. It withdrew its registration earlier this year.
“After fully cooperating with the SEC during its investigation, Mr. Kirkpatrick and Hamilton Investment Counsel agreed to voluntarily resolve the SEC’s administrative, compliance-related claims on a neither admit nor deny basis,” Chase said. “Importantly, the SEC did not allege that either Mr. Kirkpatrick or the firm engaged in fraudulent conduct, or in any way deceived or misled clients.”
Representatives for LPL didn’t respond to requests for comment.
A lawyer representing Hollifield, a 23-year industry veteran who had been with LPL for five years when he was terminated in August 2021, declined to comment on the SEC’s allegations. The lawyer also declined to comment on allegations by a cousin who accused Hollifield, 49, of stealing $1.24 million to help buy the mansion. In a court filing, Hollifield denied the allegations of the cousin’s 10-count lawsuit against him and his wife.
In 2020, Hollifield defrauded the cousin, at least one other relative and a third client, according to investigators. He convinced two of them to invest in a firm called Century Warehouse, which “purportedly provided shipping logistics and warehousing services” before dissolving last year, investigators said. He also urged his cousin to seek a higher-yield cash account under Goldman Sachs by moving the money outside of LPL, only to seize it for himself, the SEC said. Holllifield told certain clients that Century Warehouse would spend its money on personal protective equipment and other coronavirus-related supplies and relief for veterans, according to the SEC’s filings in Atlanta federal court. Instead, Hollifield bought the huge home, the SEC said.
The 71-year-old cousin who sued Hollifield last December, Joyce Gallimore, found out that her money went toward the purchase of the mansion one year after the cash had left her LPL account in an August 2020 transfer, according to the complaint. Hollifield filed his own third-party complaint in the case against LPL in February claiming that the firm should be held responsible for his relative’s losses because it failed to review the transaction properly. In April, Hollifield dismissed that claim from the case.
Industry supervisory implications
Regulators later held the RIA, rather than LPL, liable for failing to review and respond to the potential red flags posed by Hollifield’s outside business activity with Century Warehouse.
Kirkpatrick “knew or should have known that [Hamilton’s] compliance program was inadequately implemented,” according to the SEC’s case. Besides his civil penalty of $15,000, Kirkpatrick agreed to a 5-year ban on acting in a supervisory capacity with any RIA, brokerage or other financial firm.
In her statement, Peirce said that, “I look forward to continued engagement with compliance personnel on designing a properly calibrated CCO liability framework, including in light of specific fact patterns such as the one at issue in this enforcement action.”
As an example, Peirce cited
“These career-ending enforcement actions discourage individuals from becoming or remaining compliance officers and performing vital functions that regulators stretched too thin would otherwise be unable to perform, particularly when other options, such as providing legal advice or becoming an outside compliance service provider or businessperson, involve less personal risk,” the plan states. “By instituting a framework, the SEC and the compliance industry will more fully realize their shared interests which, in turn, will ultimately benefit the investing public.”
