The US Securities and Exchange Commission (SEC) has announced charges against nine investment advisers and three broker-dealers for failing to keep records of off-channel communications.
The firms and their personnel are accused of failing to maintain and preserve electronic communications, in violation of specific federal securities laws.
“The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of US$63.1m,” said the SEC.
The firms in question have also begun implementing improvements to their compliance policies and procedures to address these violations, according to the regulator. One of the firms self-reported its violations and, as a result, will pay significantly lower civil penalties than it would have otherwise. The penalties are as follows: Blackstone US$12m; Kohlberg Kravis Roberts & Co US$11m; Charles Schwab US$10m; Apollo Capital Management US$8.5m; Carlyle and AlpInvest Partners a combined US$8.5m; TPG US$8.5m; Santander US$4m; and PJT Partners, which self-reported, will pay a reduced penalty of US$600,000.
“In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement Divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognised and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation.”
Each of the SEC’s investigations uncovered the use of unapproved communication methods, known as off-channel communications, at these firms. The firms all admitted that their personnel sent and received off-channel communications that should have been recorded. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.
Off-channel communications have become somewhat of a headache for compliance departments since the Covid-19 pandemic forced workers to adopt remote working methods at short notice. Several banks were fined in 2022 for employee use of Whatsapp and other messaging apps for work communications.
