SEC, CFTC fine Wall Street firms $1.8 billion
On September 27, the SEC and CFTC announced settlements (see here and here) with numerous broker-dealers for alleged recordkeeping failures. According to the SEC, from January 2018 through September 2021, the firms’ employees communicated about business matters using text messaging applications on their personal devices. The SEC further alleged that the firms violated federal securities laws by failing to maintain or preserve the substantial majority of these off-channel communications. The SEC charged each of the firms with violating certain recordkeeping provisions of the Securities Exchange Act of 1934, and with failing to reasonably supervise and detect such violations. Additionally, an investment adviser was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940. In addition to paying a total of $1.1 billion in fines, the firms were ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured. The firms agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices. The SEC recognized the firms’ cooperation with the investigation.
Separately, in a related action, the CFTC announced settlements with many of the same firms for related conduct, totaling nearly $710 million. The CFTC noted that each firm acknowledged to CFTC staff that it was aware employees used unapproved methods to engage in business-related communications. The CFTC also said that as a result of each firm’s failure to ensure that its employees complied with communication policies and procedures, the firms failed to maintain business-related communications. The CFTC found that each firm failed to diligently “supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.”