SEC Fines 11 Wall St. Firms $549 Million For Failure To Maintain Electronic Communication Records

A combined $549 million in penalties have been announced against Wall Street firms that the Securities and Exchange Commission says “failed to maintain electronic records of employee communications”, according to a new report from CNBC. 

The SEC put out a news release on Tuesday morning, announcing that it was charging 11 firms with “widespread” record keeping failures. The release “announced charges against 10 firms in their capacity as broker-dealers and one dually registered broker-dealer and investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications”. 

The agency said that the firms “admitted the facts set forth in their respective SEC orders” and “acknowledged that their conduct violated recordkeeping provisions of the federal securities laws”. They also “agreed to pay combined penalties of $289 million”.

The firms have also “begun implementing improvements to their compliance policies and procedures to address these violations”, the release says. The SEC says it uncovered “pervasive and longstanding off-channel communications at all 11 firms,” stating that firms often communicated through iMessage, WhatsApp, and Signal when talking about the business of their employer. 

The SEC claimed that “by failing to maintain and preserve required records, certain of the firms likely deprived the Commission of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior executives.”

Among the banks named in the SEC release are:

• Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;
• BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;
• BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;
• Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;
• Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and
• SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, commented: “Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets. To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home. And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not.” 

Grewal added: “So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”

Sanjay Wadhwa, Deputy Director of Enforcement, added: “Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws. Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors.”

“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements, and are implementing measures to prevent future similar violations. However, we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”