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SEC announces fines against 16 firms for recordkeeping violations

On Behalf of | Oct 7, 2022 | Regulatory Investigations

The Securities and Exchange Commission announced that 15 broker-dealers and one affiliated investment advisor have been charged with widespread recordkeeping violations.

The SEC said the firms involved admitted to longstanding failures in maintaining and preserving electronic communications and agreed to pay combined penalties of over $1.1 billion. They have also agreed to begin implementing improvements to their compliance policies and procedures.

The charges cover the period from January 2018 through September 2021. According to the SEC, employees with the firms routinely communicated about business matters through the use of text messaging applications on their personal devices. The firms violated federal securities laws by not maintaining or preserving the majority of those off-channel communications as required. The commission said these failures likely deprived the SEC of the communications when conducting various investigations.

Eight firms and five affiliates consented to penalties of $125 million each, two firms will pay penalties of $50 million each, and one firm will pay a $10 million fine.

“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” said SEC Chair Gary Gensler. “Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”

The SEC said the firms under investigation cooperated with the probe by gathering communications from the personal devices of a sample of their personnel, including senior and junior investment bankers and debt and equity traders.

Each of the 15 broker-dealers was charged with violating recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise in order to detect and prevent those violations. DWS Investment Management Americas, Inc., the investment adviser, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and failing reasonably to supervise with a view to preventing and detecting the violations.

In addition to the SEC’s actions, the Commodity Futures Trading Commission announced settlements with 11 firms over employees communicating about business matters by using text messaging applications on their personal devices. The firms will pay penalties totaling $710 million.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. If your firm is facing an investigation from a regulatory agency, please contact us at (888) 655-6002 or through our online contact form.