The Securities and Exchange Commission announced that it has charged New York-based advisory firm Senvest Management with failing to preserve business-related off-channel electronic communications.
The charges involve the period from January 2019 through December 2021, when the SEC alleges that Senvest employees communicated on business matters by text and other platforms not approved by the firm. Senvest was also accused of failing to maintain or preserve those off-channel communications as required under the federal securities laws and the firm’s policies and procedures.
In one instance, the SEC said that three senior employees engaged in off-channel communications on personal devices that were set to automatically delete messages after 30 days. The commission also found that certain employees did not follow provisions of the firm’s code of ethics requiring them to obtain pre-clearance for all securities transactions in their personal accounts.
“The Commission continues to focus on regulated entities’ compliance with the recordkeeping requirements,” said Eric Werner, Director of the Fort Worth Regional Office. “Adherence to these requirements is essential for the Commission to effectively exercise its regulatory oversight and enforce the federal securities laws.”
Senvest was found to have violated certain recordkeeping and ethics provisions of the Investment Advisers Act of 1940 and failed to reasonably supervise with a view to preventing and detecting violations. To settle this matter, Senvest admitted the facts set forth in the commission’s order, acknowledged that its conduct violated the federal securities laws, and agreed to pay a $6.5 million penalty and to implement improvements in compliance.
Senvest was also censured and ordered to cease and desist from future violations of the relevant provisions of the federal securities laws. The firm agreed to retain a compliance consultant to, among other things, conduct comprehensive reviews of its policies and procedures relating to the retention of electronic communications found on personal devices and the framework for addressing non-compliance by its employees with those policies and procedures.
The SEC did say that the firm made several remedial efforts before the settlement. The firm provided employees with firm-issued cell phones to reduce off-channel communications, and these devices automatically upload communications into a firmwide archiving system.
The Senvest matter is the latest case in the SEC’s crackdown on the use of unapproved outside messaging apps such as WhatsApp in the financial industry. In October 2022, the commission 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.
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