The Annual Compliance Week conference was held in Washington, D.C. last week and the keynote speaker was Andrew Ceresney, Director of the Division of Enforcement at the Securities and Exchange Commission (SEC).  For those that do not know, the Compliance Week conference is a conference that brings together compliance, risk, and audit executives from corporations across the United States. During his speech, Ceresney shared his thoughts on recent accomplishments and initiatives of the SEC, including several task forces the Division of Enforcement has created over the past year. He also offered a four-question test that companies should ask themselves in order to determine the effectiveness of their compliance programs. These questions center around a very important central theme in my opinion, companies should consult their attorney.

During his speech Ceresney said:

Ceresney“I start from the premise that the companies that have done well in avoiding significant regulatory issues typically have prioritized legal and compliance issues …   I have found that 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 departments in the firm.”

Ceresney went on to provide the following four “simple questions” that he believes  companies should ask themselves when reviewing their compliance programs:

    • Are legal and compliance personnel included in critical meetings?
    • Are legal and compliance personnel 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 rather than as support functions, or a cost center?

The theme of these questions is clear. Companies should view their legal and compliance personnel as vital components of their businesses whose advice should be sought out regularly and followed. When companies do not, problems often arise. As noted by Ceresney,   “the absence of legal and compliance involvement can lead to compliance lapses, which can lead to enforcement issues.”

The importance of a person or company consulting with their legal counsel regularly goes well beyond simply addressing SEC compliance issues. This importance is something I routinely try to impart to my clients. Many entrepreneurs and even established businesses see the act of consulting with an attorney as a burden or, at the very least, a roadblock in the way of quickly meeting their business goals. As a result, far too often, they choose to go without the advice of counsel and shoot from the hip. It is understandable that entrepreneurs and businesses are often focused on the end goal, but  the sheer amount of legal regulations governing any business today makes such an approach inadvisable at best. Consulting the advice of counsel is even more important when you are talking about the J.O.B.S. Act and the emerging industry of crowdfunding  where the laws are unclear and the potential monetary and personal risks are extremely high.

Let’s put it in a different context. If you broke your arm, your goal would obviously be to get better, but would you just go on about your business without caring for it in the correct way? Absolutely not, you would go to a doctor who knows the right way to set your arm so it heals correctly and you don’t have problems in the future. The same logic should apply to your legal counsel.

As I am sure Director Ceresney would agree, entrepreneurs and businesses should be smart enough to know what they don’t know and consult the advice of a qualified attorney before making material business decisions, particularly when it comes to doing business in the highly regulated crowdfunding industry. What is it your parent’s used to tell you … “an ounce of prevention is worth a pound of cure”… that could not be more true when talking about legal issues.

About Anthony Zeoli

Anthony Zeoli is an experienced transactional attorney with a national practice. Specializing in the areas of securities, commercial finance, real estate and general corporate law, his clients range from individuals and small privately held businesses to multi-million dollar entities. Mr. Zeoli is also an industry-recognized crowdfunding, peer-to-peer (P2P) lending and JOBS Act expert and is currently an active board member and Secretary of the CfPA (Crowdfunding Professional Association) and an active member of CFIRA (Crowdfund Intermediary Regulatory Advocates). Most recently he drafted Illinois House Bill 3420, a bill which provides for an intrastate crowdfunding exemption in Illinois and which was unanimously approved by the Illinois’ house and Senate. Anthony is also currently actively involved with the entrepreneurship program at the University of Illinois at Chicago as both a mentor and a student advisor and is an active advisory board member of the New York Distance Learning Association (NYDLA).
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  1. Tom Parker says:

    I would agree attorneys and compliance are very helpful. Get it done right the first time and avoid headaches down the road!

  2. ajzeoli says:

    Absolutely, cannot underestimate the importance of consulting with accountants like yourself in the process either.

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