The Securities and Exchange Commission (SEC) charged 11 Wall Street firms with widespread and long-standing failures related to maintaining and preserving electronic communications. These firms, including well-known names like Wells Fargo Securities, BNP Paribas Securities Corp., and Mizuho Securities USA LLC, have admitted fault and agreed to pay a collective penalty of $289 million.
Each broker-dealer involved was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934. Wedbush Securities Inc., a dually registered broker-dealer and investment adviser, faced additional charges related to violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
Each of the charged firms has accepted the allegations made by the SEC and agreed to pay substantial penalties. Below is a summary of some of the penalties incurred:
These penalties serve as a stark reminder that compliance with recordkeeping requirements is crucial for investor protection and market integrity.
Gurbir S. Grewal, Director of the SEC's Division of Enforcement, stressed the importance of compliance with recordkeeping rules, emphasizing that the SEC has taken action against 30 firms with over $1.5 billion in penalties to reinforce this message. He urged firms to self-report, cooperate, and remediate issues to achieve better outcomes or “wait for us to come calling.”
Sanjay Wadhwa, Deputy Director of Enforcement, highlighted that recordkeeping failures hinder the SEC's ability to effectively regulate and oversee the industry, potentially harming investors. Wadhwa warned that while the 11 firms involved have admitted their violations and are taking steps to prevent future breaches “we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”
The SEC's investigation unearthed a common pattern of "off-channel" communications across all 11 firms. Employees frequently used personal messaging platforms like iMessage, WhatsApp, and Signal for business-related discussions. These firms failed to maintain or preserve most of these off-channel communications, in clear violation of federal securities laws. These lapses potentially deprived the SEC of crucial information during various investigations. Notably, employees at all levels, including supervisors and senior executives, were involved in these failures.
Apart from the substantial financial penalties, the firms were ordered to cease and desist from future recordkeeping violations and received censures. Additionally, they agreed to enlist independent compliance consultants to conduct comprehensive reviews of their policies and procedures. These reviews will specifically focus on retaining electronic communications stored on personal devices and the frameworks for addressing non-compliance by employees.
The SEC's decisive enforcement action against these 11 Wall Street firms underscores the pivotal role recordkeeping plays in preserving investor protection and market integrity. By acknowledging their failures and accepting substantial penalties, these firms are signaling their commitment to enhancing their compliance policies and procedures. In an evolving financial landscape, regulatory oversight remains paramount, and firms must heed the SEC's message: self-report, cooperate, and rectify issues to avoid costly repercussions and protect investors.
