The US Securities and Exchange Commission (SEC) has taken action against 11 firms for consistent and long-standing failures in maintaining and preserving electronic communications. The 11 firms, 10 broker-dealers and one dually registered broker-dealer and investment adviser, admitted violating recordkeeping provisions of the federal securities laws and have agreed to pay a collective penalty of $289 million, as follows:
- Wells Fargo Securities, LLC, Wells Fargo Clearing Services, LLC, and Wells Fargo Advisors Financial Network, LLC will together pay $125 million.
- BNP Paribas Securities Corp. and SG Americas Securities, LLC will each pay $35 million.
- BMO Capital Markets Corp. and Mizuho Securities USA LLC will each pay a penalty of $25 million.
- Houlihan Lokey Capital, Inc. will pay $15 million.
- Moelis & Company LLC and Wedbush Securities Inc. will each pay $10 million.
- SMBC Nikko Securities America, Inc. will pay $9 million.
The SEC’s investigation revealed that from 2019 onwards, employees at these firms – at multiple authority levels, including supervisors and senior executives – frequently communicated about business matters using personal ‘off-channel’ messaging platforms like iMessage, WhatsApp, and Signal. These communications were not preserved, violating federal securities laws and potentially hindering the SEC’s ability to access the communications during various investigations.
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.” He 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, highlighted the significance of recordkeeping for regulatory oversight and investor protection. He noted that the firms involved have recognized their legal violations and are taking steps to prevent future breaches. “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,” he cautioned.
Each broker-dealer was charged with violating specific recordkeeping provisions of the Securities Exchange Act of 1934. Additionally, Wedbush Securities Inc., which is dually registered, was charged with violations related to the Investment Advisers Act of 1940.
Beyond the financial penalties, the firms were ordered to cease and desist from future violations of the relevant recordkeeping provisions and received censures. They have also agreed to hire independent compliance consultants to review their electronic communication retention policies and procedures.
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