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The Securities and Exchange Commission is fining 15 broker/dealers and one affiliated investment advisor $1.1 billion to settle charges of “widespread and long-standing failures” when it comes to the firms’ communication practices.
Specifically, the SEC charged the firms with widespread failures, “including at senior levels,” in meeting record-keeping requirements, particularly for private communications, in which employees communicated via personal text messages and through platforms like WhatsApp.
The affected firms include many of the largest players in financial services, including Barclays Capital, Bank of America Securities, Citigroup Global Markets, Credit Suisse Securities, Deutsche Bank Securities, Goldman Sachs, Morgan Stanley and UBS, each of which agreed to pay $125 million to settle the charges (Jeffries and Nomura Securities International agreed to fines of $50 million each, while Cantor Fitzgerald will pay $10 million).
In a statement on the charges, SEC Chair Gary Gensler said the firms had failed to meet record-keeping and books-and-records obligations, and had thus “failed to maintain” the trust financial services depends upon.
“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,” he said.
The Commodity and Futures Trading Commission also settled charges with the firms. This marks a close to investigations that found “pervasive off-channel communications” among senior and junior individuals at the firms, “including supervisors and senior executives,” between January 2018 and September 2021, according to the CFTC.
The SEC said firms cooperated with the investigations, including by gathering communications from the personal devices of a random sample of firm employees. Multiple employees at Morgan Stanley used “non-firm approved methods on their personal devices about the firm’s broker/dealer business,” according to the firm’s settlement with the commission.
“Morgan Stanley’s supervisors, who were responsible for preventing this misconduct among junior employees, routinely communicated off-channel using their personal devices,” the settlement read, mirroring claims in the other orders.
The firms didn’t maintain or preserve a large portion of these off-book communications, which was in violation of federal securities laws, according to the SEC. Additionally, failing to maintain records likely impeded the commission’s ability to regulate the industry and conduct investigations.
SEC Enforcement Director Gurbir S. Grewal said the size of the firms involved (and the size of the penalties) underscored that record-keeping requirements were “sacrosanct.”
“If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” Grewal said. “Other broker/dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies.”
According to the SEC, in addition to the monetary penalties, the firms agreed to a cease-and-desist, a censure, and pledged to bring “compliance consultants” onboard to review their policies pertaining to electronic communication record-keeping, as well as how to deal with employee non-compliance.
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