Jason Meyer: Gut Check – Chief Compliance Officer Deborah Duffy Pleads Guilty

There’s news this week that may give you some sleepless hours.

A Chief Compliance Officer has pleaded guilty to money laundering, securities fraud, and conspiracy.

The CCO here is Deborah Duffy, who formerly held that position with WG Trading Co. The General Partners of that firm, Paul Greenwood and Steven Walsh, face criminal charges and civil suits brought by the SEC and by investors including the University of Pittsburgh and Carnegie Mellon University. The SEC says these mini-Madoffs used their company as a “personal piggy bank,” and allege that investors were bilked out of hundreds of millions of dollars. Greenwood and Walsh have not yet entered a plea.

But Duffy, 53, has confessed, and has agreed to cooperate with prosecutors in their larger probe. Deborah Duffy also still faces a civil suit brought by the SEC, which alleges the following:

…that Duffy assisted in the fraud by knowingly wiring investor funds to Greenwood and Walsh’s personal bank accounts and by creating phony “promissory notes” to cover up the fraud. Duffy knew that the funds she was wiring out of the investors’ account were being used by Greenwood and Walsh for their personal expenses and were not being invested at WGTC. Duffy also misappropriated as much as $292,000 of investors’ money for herself by wiring investor funds to accounts that she controlled or to third-parties to pay for personal items she purchased.

The Wall Street Journal quotes Duffy as telling the Court, “I assisted in the unlawful transfer to my bosses of more than ($100 million) to my bosses’ benefit as loans.”

From other reports of Duffy’s allocution, however, it appears that part of Deborah Duffy’s crime was that she sat idly by as things started to unravel. According to Bloomberg reporter David Glovin:

In her guilty plea to money laundering, securities fraud and conspiracy, Duffy said she authorized transfers to others at the firm of more than $100 million. At first, she said, she believed the transfers were loans that would be repaid.

“After a period of time, I realized that the money was not being returned,” Duffy told U.S. District Judge Naomi Buchwald.

Whatever Duffy did, and whatever happened at WG Trading, there is a reminder here for compliance professionals that it’s not just the CEOs and CFOs and maybe the occasional GC who may wind up being fitted for a lovely orange jumpsuit.

But beyond the obvious warning to not be a crook, there’s a lesson for compliance pros and corporate counsel about the costs of getting along by going along. If you don’t want to take the risk that you might someday have to jeopardize a comfortable gig by blowing the whistle, then don’t take the job. And when you’ve got the job, better stay vigilant.

Tags: chief compliance officer, crime, Deborah Duffy, scandal, sec