CCO Behind the Scenes - Episode 2

Join Oyster Consulting's Jeffrey Hiller in his new podcast mini-series, CCO - Behind the Scenes, as he shares his vast experience as both a CCO for several global investment firms and Senior Counsel for the SEC's Division of Enforcement. Being CCO is more than just checking boxes. There are office politics to navigate, nuances to dealing with regulators and board members, and of course, ethical issues. Listen and learn in these short discussions as Jeffrey shares his real experiences and lessons learned from his decades in the industry. Some things you just won't get from a textbook, such as repeat violations and how and when to escalate issues successfully.

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Episode Transcript

Jeffrey Hiller (00:15):
Welcome to"CCO- Behind the Scenes'" an Oyster
Stew podcast, miniseries.
I'm Jeffrey Hiller, ManagingDirector at Oyster Consulting,
former Senior Counsel for theSEC's Division of Enforcement.
I've also served as CCO at manywell-known global investment
firms.
I've seen both sides, I've beenon both sides, and I literally

(00:37):
helped write the textbook for USmodern regulatory compliance.
Being CCO is more than justchecking boxes.
There are office politics tonavigate, nuances to dealing
with regulators and boardmembers, and, of course, ethical
issues.
Join me as I share my realexperiences and lessons learned
from my decades in the industry.

(00:57):
Some things you just won't getfrom a textbook.
Last episode, I talked about"tone at the top," SEC exam
document production and how touse exceptions to your
advantage, and some effectiveways to communicate with your
Board.
This time, I'd like to talkabout repeat violations and

(01:18):
escalating issues.
When you review past issues,you've got to identify whether
you have any repeat violations.
If you were given a deficiencyletter or notified of something

(01:41):
about the SEC a year or twoyears ago, you should put that
in your annual compliancereport, and you should
routinely, maybe once or twice ayear, make a list of all prior
violations to make sure they'restill fixed.
It wouldn't be unusual, withpeople going on vacations, with

(02:04):
personal trading, that they canget lost.
It's not for a bad purpose, butjust in the normal course; you
do so much that sometimes youlose sight of those things.
So I make a routine list of allpast violations, and then I
review them at least once ayear.
I also report to the Board or mybosses, or whatever, that these

(02:26):
were prior violations, and thatthat's probably the most serious
kind of sanction you can havewith the SEC, and then we're on
top of it.
That engenders both trust fromyour bosses, and when the SEC
comes in, they see that we areroutinely incorporating what
they've said over the lastthree, four, five years, or
however long since the lastexam, or during the course of

(02:49):
exams.
That again gives you a lot ofcredibility.
So that is one tip that I wouldencourage everyone to do.
Another topic I'd like tobriefly discuss is escalation.
When you escalate an issue toyour boss or to the Board or to
others, many times I've had astaff member come to me with a

(03:11):
panic:"We have an awful trade,and we need to notify everyone
immediately.
Totally.
It is a critical and we couldlose a lot of money." One d ay,
I brought such an issue andescalated it quickly, and it
turned out that it wasn't such aserious issue.
My employee was right inflagging it to me, but I was

(03:33):
probably wrong in escalating ituntil I understood all the
facts.
So I dig into those facts.
I look at what we have.
I vet it, and of course you wantto escalate these things in a
timely manner, but you don'twant to either over escalate or
under escalate.
So, when you bring something toyour higher superiors or others

(03:54):
in the firm, you want to makesure you understand all the
facts.
If you have the time, you alsowant to understand what the
solution is.
I've always been guided by aboss who told me that,"I want
you to identify problems, butwhen you bring them to me, I
also want you to have somesolutions if you can." So that's
been a really important part ofhow I manage compliance and how

(04:18):
I escalate matters.
I would talk about one time whenI had a case where a portfolio
manager in Asia, one of ourportfolio managers committed a
trade error and over- boughtsomething, unintentionally
selling.
It would cost us about ahalf-million dollars as a

(04:39):
trader.
So, the first thing I did wasscope out what was done.
The second thing I did was lookat all her emails to see if she
had discussed these, and to seewhat the problem was.
One of the important things Ifound was that many firms charge
traders back to the bonus poolof the unit that caused them.
So if a trader made a big error,that would probably be charged;

(05:05):
if they were in fact negligent,and they should have done other
things, that would likely becharged against your bonus pool.
So from the get go, you havepeople who have a financial
interest in it.
Not being a trader in Asia, it'sparticularly troublesome,
because a lot of Asiansecurities commissions don't

(05:26):
really recognize trade errors.
They think that it's part of theway people do business.
That of course they're going tomake minor errors, but most of
the firms I've been with don'ttreat it that way.
They take them all seriously,and if they've made a mistake,
they want to gross up theirclients so that they don't have
a problem.

(05:46):
So I was faced in that case withcompeting interests.
What the email showed was thatthe trader tried to reverse the
trade and cover it up with theircounterpart at the executing
broker.
When I saw all those, it becamepretty clear to me that we had
to make it whole.

(06:07):
It was pretty clear to thetrading unit that they didn't
want to make it whole, becauseit was a half a million dollars.
We met with the CEO, and I leteverybody express their concern.
Then I presented everyone in theroom with the fact sheet of
about five to six bullet points,which set forth that this was

(06:29):
our error; that we tried tocover it up; that we tried to
make it go away; that eventhough Asia law might have some
way; that we needed, based onour reputation and our integrity
and our promises to our clients,that we had to repay that money.
The CEO listened to everybody,took the sheet, looked at it and

(06:53):
then looked at the trading groupand said,"We've listened to all
the arguments.
You've made an error.
We're going to reimburse ourclient." Now, that process took
probably two weeks, and it's nota good idea to have trade errors
hanging out that long, buteverybody needed to have a
voice.
At the end of the day, eventhough my people were panicking,

(07:15):
why this is an easy compliancecall, it's not so easy when you
understand the circumstances.
But, we all got to the rightresults.
Thanks for listening.

(07:36):
And I hope you found thishelpful.
If you like what you heard, makesure to follow the Oyster Stew
podcast on whatever platform youlisten to.
Oyster consultants are industrypractitioners.
We aren't career consultants.
We've done your job and know theissues you face.
If you'd like to learn how wehelp firms start, run, and
protect and grow their business,visit our website at

(07:58):
www.oysterllc.com.