Introduction
The stakes are high in financial industry litigation. Banks and broker-dealers may be on the hook for millions or even billions of dollars. With compliance, controls, governance, and supervisory oversight often taking center stage, it is surprising there have been so few independent compliance experts called to testify. Like damage experts or forensic accountants, maybe “compliance expert” should be a category unto itself? Compliance officers are the true experts on suitability, misrepresentation, manipulation, fraudulent conveyances, money-laundering and many other topics. Working hand-in-hand with Legal Departments, Compliance Departments are the controls-implementers and fraud-preventers of financial institutions. Chief Compliance Officers participate in governance committees and have the best understanding of how controls are implemented throughout an institution, and allegations of such failures are at the core of most securities litigation. Every day, compliance officers identify (or should identify) conflicts of interest and other red flags, analyze them and, with senior management, decide and document the way forward for the bank or broker-dealer. At trial, a compliance expert can aid judges and juries in understanding those regulatory and policy standards required to be implemented to protect consumers, investors, and other stakeholders. Obviously, as compliance obligations become more complex, the testimony of a specific, independent, compliance expert witness could move the needle in most cases alleging compliance and control failures.
The Value of Specialized Expertise
Financial litigation—especially cases involving banks and broker-dealers—is intricate. Asking, “What is the compliance angle?” is an early step to forming a convincing argument. These cases depend on a nuanced understanding of complex regulatory frameworks, industry best practices, and systems of controls, escalation, and governance. An expert’s ability to effectively analyze evidence, construct compelling arguments, and deliver clear testimony can be the difference between winning and losing.
Your Compliance Expert must know…
- Regulatory Compliance: A deep understanding of federal and state regulations that govern banking and broker-dealer activities is essential.
- Supervision and Oversight: Expertise in evaluating supervisory structures, policies, and procedures can provide valuable insights into the financial institution.
- Governance and Controls: A strong grasp of internal control frameworks and risk management practices can be critical in many cases.
- Industry Best Practices: Real-world experiences and extensive knowledge of industry standards and best practices offer a convincing perspective. Judges, juries, and arbitration panels need to understand complex regulatory obligations from an independent source.
