Pre-Clearance Under Pressure: Document Integrity and Personal Accountability

The SEC’s July 2025 administrative action against a former Chief Compliance Officer underscores a simple but critical truth: integrity of the compliance record is non-negotiable. According to the Commission’s findings, the CCO “altered, fabricated, and caused others to fabricate” pre-clearance records to make it appear that certain trades had been properly reviewed and approved before execution when, in fact, they had not. These altered documents were then provided to SEC examiners during an ongoing inspection.

The order details how, upon receiving an examination request for personal-trading documentation, the CCO realized that several trades by employees including her own were missing required pre-clearance forms. Rather than disclose the gaps or explain the oversight, she directed others to prepare back-dated records and personally modified existing forms “to reflect approvals that were never provided.” The Commission found that the CCO “knowingly submitted falsified compliance records” and that her conduct “obstructed and undermined the Commission staff’s examination.”

The SEC charged violations of Sections 204(a) and 206(4) of the Investment Advisers Act of 1940 and Rule 204-2(a)(12), which requires advisers to make and keep true, accurate, and current books and records. The order also cited Rule 206(4)-7, emphasizing that a compliance program cannot function when its records are unreliable. Without admitting or denying the findings, the respondent consented to a cease-and-desist order, a permanent bar from association with any investment adviser, and a civil monetary penalty.

What stands out in this case is not the complexity of the violation but the decision-making under pressure. The Commission noted that the CCO’s motivation appeared rooted in “a desire to present the firm’s compliance program as operating effectively,” but the result was the opposite. Proof that documentation integrity is the foundation of credibility. The SEC wrote: “Compliance records are meaningful only if they accurately reflect the events they purport to document. When that trust is broken, the entire compliance framework is compromised.”

Practical Lessons for Compliance

Advisory firms should treat this case as a cautionary example of how seemingly small acts intended to “tidy up” records can escalate into enforcement matters. Firms can test their own programs through the following steps:

Strengthen Record Authenticity Controls: Maintain all compliance documents  pre-clearance requests, approvals, attestations  in systems that preserve creation dates, user IDs, and audit trails to prevent post-submission editing.

Implement an Examination Response Protocol: Establish a written plan for responding to regulatory requests that requires dual review of any materials produced to regulators for completeness and accuracy.

Conduct Periodic Forensic Reviews: On a sample basis, verify that pre-clearance approvals pre-date the associated trades. Discrepancies should be logged and investigated, not rationalized.

Train for Ethical Decision-Making: Include specific training for compliance staff and supervisors on handling late or missing documentation, emphasizing that disclosure and corrective action are preferable to reconstruction.

Document the Exception Process: Formalize how missing or late filings are reported, reviewed, and resolved. Transparency in this process reinforces ethical expectations.

Independent third-party reviewers can be valuable in evaluating recordkeeping systems and exam-response protocols. Engaging an external compliance consultant provides objective testing of documentation controls and can help management identify weak points before they become liabilities. An outside review also supports accountability, demonstrating to both regulators and clients that the firm prioritizes integrity over appearance.

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Coulter Strategic Services provides customized compliance and regulatory consulting designed to meet the specific needs of each investment advisory firm. Services are tailored to the firm’s structure, business model, and regulatory obligations to help maintain an effective and sustainable compliance program aligned with current expectations. Contact us today to discuss your firm’s compliance program needs. Learn more at https://www.coulterstrategicservices.com/

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