11 Firms Charged by the SEC for Recordkeeping Failures
SEC Releases
Brief Introduction
On Tuesday, August 8th, the SEC announced that there have been 11 Wall Street Firms charged with widespread recordkeeping failures totaling combined penalties of $289 Million.
Off-Channel and Electronic Communications continue to be a heavy focus by the SEC and this continues to increase upon the SEC fines announced today.
The Director of the SEC’s Division of Enforcement emphasized the importance of continuing to build on the SEC’s mission of “investor protection” as well as “well-functioning markets”.
Key Issues Discovered by the SEC
- While there is a heightened importance on the recordkeeping failures, it is important to note the Firms charged were Broker Dealers and one Dually Registered Broker Dealer/Investment Adviser.
- The findings were pervasive and longstanding Off-Channel Communications at all 11 Firms.
- Since 2019, the Firms admitted their employees were communicating without supervision through the following channels regarding the business of their employers:
- iMessage
- Signal
- The majority of the Off-Channel Communications were not preserved or maintained as records.
- There was a wide range of authority levels responsible for the violations that took place, including supervisors and senior executives.
- Each Broker Dealer was charged with failing to reasonably supervise with a view to preventing and detecting those violations and recordkeeping failures.
Takeaways from the SEC’s Division of Enforcement
- The Commission has brought 30 enforcement actions and ordered over $1.5 Billion in penalties as it relates to compliance with the books and recordkeeping requirements.
- It was highlighted that they believe today’s fines signify that Firms still have not improved internal policies, procedures, and self-reported violations.
- They described the importance of following the framework below to help have a better outcome rather than waiting for the SEC to come in:
- Self-Report;
- Cooperate; and
- Remediate.
- This is a continuing sweep covering Investment Advisers and Broker Dealers regarding compliance with recordkeeping requirements.
- They are aware that other SEC-regulated entities have committed similar violations and have made it clear their mission continues to enforce compliance throughout the industry.
Vigilant’s Conclusion
Off-Channel Communications continue to be a “top of mind” focus by the SEC and Division of Enforcement in 2023.
As noted in the 18 Compliance Trends seen by the Vigilant Team so far in 2023, we have noticed the following below as it related to Off-Channel Communications:
- It is vital that all business communications are archived properly for easy access during SEC Examinations/Investigations.
- Off-Channel Communications are bringing in large fines, and Firms are working hard to bring employees into compliance with it.
- Firms need to ensure that non-business communications do not cross the line into leaking confidential information.
- Failure to properly monitor electronic communication increases the risk of both SEC Enforcement and Litigation.
- Close monitoring of employees in all communication mediums should help reduce the risk of potential Fines and Litigation.
The Vigilant Team continues to focus on its goal of providing (1) hands on, (2) efficient, (3) reliable, and (4) cost-effective compliance solutions to the industry.
If you are in need of a Gap Analysis of your Firm’s Policies and Procedures, a Mock SEC Exam, or Compliance Support, contact us today to learn more about how we can help.