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SEC finalizing settlements with firms over record-keeping failures

On Behalf of | Oct 6, 2023 | Regulatory Investigations

More firms are expected to face penalties in the Securities and Exchange Commission’s ongoing probe into the use of unapproved outside messaging apps such as WhatsApp in the financial industry.

According to an exclusive report by Reuters, the SEC is negotiating settlements with about two dozen firms who have been the subject of recent investigations.  The report cites two people with knowledge of the situation who said the commission’s allegations focus on record-keeping failures by the companies.

The terms of the settlements were not disclosed, but the firms were expected to be required to pay fines, admit to their misconduct, and agree to take action to address the issues.  The sources said one element of the agreements would call for hiring independent consultants to update the firms’ record-keeping systems.  Some firms may pay up to $50 million in financial penalties, according to the report.

In October 2022, the SEC charged 15 broker-dealers and one affiliated investment advisor with widespread recordkeeping violations after finding widespread failures in maintaining and preserving electronic communications. The commission said employees with the firms routinely communicated about business matters through the use of text messaging applications on their personal devices, but the records of those communications were not properly preserved. The firms agreed to pay combined penalties of over $1.1 billion.

In addition, major banks have paid a combined $2 billion in financial penalties following allegations by the SEC and Commodity Futures Trading Commission that their employees conducted official business through the use of unauthorized personal devices.

The companies currently being probed by the SEC were not named in the Reuters report, but at least 16 broker-dealers and investment advisers have disclosed in regulatory filings that their communications are being looked into by the SEC.

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. When it comes to regulatory compliance and enforcement matters, our attorneys have dealt with investigations and enforcement actions stemming from allegations including violations of SEC, FINRA, and SRO rules and regulations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.