Published on Sep 28th, 2022 |

SEC Charges $1.1 Billion to 16 Firms

Brief Introduction

On September 27th, the SEC charged 16 firms over $1.1 Billion in penalties for “widespread and longstanding failures” to “maintain and preserve electronic communications”. 8 firms and 5 affiliates paid $125 million each in penalties, while two firms agreed to pay $50 million each.

As communication technology has improved exponentially in recent years, firms across the industry are in a position where their compliance policies and monitoring procedures are inadequate to protect them from regulatory violations.

What Went Wrong For These Firms?

  • Every firm violated the recordkeeping provisions of federal securities law.
  • SEC investigation found “pervasive off-channel communications” as employees “routinely communicated about business manners using text messaging applications” on personal devices.
  • The firms had limited records of business communications that occurred on their employees’ personal devices.
  • These failures occurred at all levels in the firms:
    • Supervisors;
    • Senior Executives;
    • Senior/Junior Investment Bankers; and
    • Traders.

SEC Comments From Their Findings

The SEC Chair, Gary Gensler, stated that there are requirements for recordkeeping and books-and records; these firms failed to honor these obligations. He reminds everyone affected by recordkeeping regulations that businesses must communicate only through their official channels to preserve these communications.

Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, warned firms under similar requirements that they would be incredibly wise to evaluate their own deficiencies, self-report them, and self-correct. He specifically commented on the intention of the large penalties ordered, stating that they emphasize how important recordkeeping requirements are.

Vigilant’s Final Conclusion

SEC Deputy Director of Enforcement made it clear that “the time is now to bolster your record retention processes and fix issues”. Proactive compliance management requires up-to date policies that reflect our everchanging technological landscape, and consistent monitoring to ensure violations do not occur.

This most recent charge involving 16 firms demonstrates just how costly reactive compliance management can be for your company.

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