10 Firms Charged $79 Million for Recordkeeping Failures
SEC Releases
Brief Introduction
The SEC announced multiple charges on Friday, September 29th, for violations of recordkeeping requirements.
The following type of Firms below were charged:
- 5 Broker Dealers;
- 3 dually hatted Registered Investment Advisers (“RIAs”) and Broker Dealers; and
- 2 affiliated RIAs.
These Firms were charged for failures to maintain and preserve electronic communications. The penalties combined amount totaled $79 million.
The charges highlight the ongoing importance of electronic communication recordkeeping and the importance of self-remediation.
It is clear that the SEC has no interest in slowing down its widespread investigation into recordkeeping compliance.
Failures Discovered by the SEC
- From at least 2019, the Broker Dealers admitted that their employees used text messaging to discuss business.
- The RIAs admitted that employees used off-channel communications related to investment recommendations and other financial advice.
- A “substantial majority” of the communications were not preserved.
- The lack of preserved communications also prevented the SEC staff from having the information throughout other investigations.
- The violations occurred at every level of the organizations including senior management.
- Firms were required to retain independent compliance consultants to conduct comprehensive reform of their policies and procedures.
- The Firm that self-reported received a $2.5 million penalty, which was significantly lower than those that did not.
Vigilant’s Conclusion
Recordkeeping failures will continue to bring large fines for Firms.
This recent charge shows that self-reporting and self-remediation can significantly affect the severity of the punishments.
The Director of the SEC Division of Enforcement made it clear that the reason “one of the orders included into today’s announced actions is not like the others” was the “self-reporting, remediating, and cooperating”.
There are important key factors for maintaining compliance in this area, and we believe it would be a best practice for Firms to consider conducting a gap analysis if there are concerns for recordkeeping failures.
Please reach out to us today for any concerns you may have or support you may need.