The Securities and Exchange Commission has charged 15 broker-dealers and one affiliated investment advisor for failing to maintain and preserve business communications on personal electronic devices.
“The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters,” the SEC said in a Sept. 27 press release.
According to the SEC eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
• Barclays Capital Inc.
• BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.
• Citigroup Global Markets Inc.
• Credit Suisse Securities (USA) LLC
• Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas Inc.;
• Goldman Sachs & Co. LLC;
• Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
• UBS Securities LLC together with UBS Financial Services Inc.
Two firms have agreed to pay penalties of $50 million each:
• Jefferies LLC
• Nomura Securities International Inc.
Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.
Pervasive off-channel communications
The SEC staff’s investigation found pervasive off-channel communications, the release said. “The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms’ personnel,” the SEC said. “These personnel included senior and junior investment bankers and debt and equity traders.”
From January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messages on their personal devices. The firms did not maintain or preserve most of these communications, violating federal securities laws, the SEC said.
“Today’s actions – both in terms of the firms involved and the size of the penalties ordered – underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.
Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations. DWS Investment Management Americas Inc., the investment advisor, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.
The firms agreed to retain compliance consultants who will review their policies and procedures for retaining electronic communications found on personal devices and how they should address non-compliance by their employees.
Separately, the Commodity Futures Trading Commission announced settlements with the firms for related conduct.
The SEC’s investigation, which is ongoing, is being conducted by Zachary Sturges and Karen Willenken of the New York Regional Office, Ian Rupell of the SEC’s Headquarters, and HelenAnne Listerman and Jessica Neiterman of the Asset Management Unit. The case is being supervised by Thomas P. Smith Jr., Osman Nawaz, Carolyn Welshhans, Corey Schuster, and Laura Josephs.
