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16 firms fined over $81 million by SEC over recordkeeping failures

On Behalf of | Feb 19, 2024 | Securities and Compliance

The Securities and Exchange Commission is fining 16 firms a total over $81 million for widespread recordkeeping failures, WealthManagement reports.

Charges were brought against five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers, who were accused of longstanding lapses by the firms and their employees in maintaining and preserving electronic communications.

The SEC’s investigations focused on the firms’ use of unapproved communication methods, known as off-channel communications.

According to the SEC’s order, “the broker-dealer firms admitted that, from at least 2019 or 2020, their employees communicated through personal text messages about the business of their employers. The investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given.”

A substantial majority of the off-channel communications were not maintained or preserved by the firms as federal securities laws require and thus were not available to the SEC for its investigations.  The failures involved employees at multiple levels of authority, the commission said.

“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

Along with their civil penalties, the firms admitted the facts set forth in their respective orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, and have begun implementing improvements to their compliance policies and procedures to address these violations, the SEC said.

One firm, The Huntington Investment Company, together with Huntington Securities Inc. and Capstone Capital Markets LLC, self-reported the matter and thus received the smallest penalty, $1.25 million.

Other firms named in the order included:

-Northwestern Mutual Investment Services LLC (NMIS), together with Northwestern Mutual Investment Management Co. LLC (NMIM) and Mason Street Advisors LLC (Mason Street) (collectively, Northwestern Mutual), agreed to pay a $16.5 million penalty;
-Guggenheim Securities LLC (Guggenheim Securities), together with Guggenheim Partners Investment Management LLC (GPIM) (collectively, Guggenheim), agreed to pay a $15 million penalty;
-Oppenheimer & Co. Inc. (Oppenheimer) agreed to pay a $12 million penalty;
-Cambridge Investment Research Inc. (CIR), together with Cambridge Investment Research Advisors Inc. (CIRA) (collectively, Cambridge), agreed to pay a $10 million penalty;
-Key Investment Services LLC (KIS), together with KeyBanc Capital Markets Inc. (KBCM) (collectively, Key), agreed to pay a $10 million penalty;
-Lincoln Financial Advisors Corporation, together with Lincoln Financial Securities Corporation (collectively, Lincoln), agreed to pay an $8.5 million penalty;
-U.S. Bancorp Investments Inc. (U.S. Bancorp) agreed to pay an $8 million penalty.

In addition to the financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. They also agreed to retain independent compliance consultants to review their procedures for retaining electronic communications found on personal devices as well as their plans for addressing non-compliance by their employees.

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. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. 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.