When a financial firm discloses recordkeeping rule violations directly to the Securities and Exchange Commission (SEC), such disclosure can potentially reduce the fine it receives by a significant amount, a senior enforcement official said, The Wall Street Journal reported.
Speaking at the Practicing Law Institute’s “The SEC Speaks in 2024” program, Deputy Director of Enforcement Sanjay Wadhwa detailed how the regulator assesses fines in such cases.
“Since December 2021, the Commission has charged nearly 60 firms – investment advisers, broker-dealers, and credit ratings agencies – with recordkeeping violations, resulting in combined penalties of just over $1.7 billion,” he said. The fines ranged from $125 to $2.5 million.
“Perhaps as a result of that wide range in penalties, there has been a critique from the defense bar that we’re picking numbers at random; that they’re not informed by individualized determinations,” he said. “I’m here to disabuse you all of that perception: stated simply, we do make an individualized assessment of each firm.”
Among the considerations governing a penalty are, he said: the size of the firm to ensure that the penalties are adequate to serve as a deterrent against future violations; the scope of the violations; a firm’s efforts to comply with its recordkeeping obligations and to prevent off-channel communications; precedent; cooperation; and whether a firm self-reported.
The latter is, “in fact, the most significant factor in terms of moving the needle on penalties,” said Wahwha. “From our prior actions, you can see how much we have credited those firms which have chosen to self-report, including the $2.5 million penalty I mentioned.”
“While none of these [factors] is dispositive, I want to reiterate that self-reporting is the factor most likely to significantly lower the penalty we recommend,” he said.
In a recent action, the SEC fined investment adviser Senvest Management $6.5 million for “widespread and longstanding failures to maintain and preserve certain electronic communications” after admitting that its employees used personal texts and forbidden messaging apps to discuss company business between 2019 and 2021.