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Wall Street Firms Settle with SEC over Electronic Record-Keeping Failures

S.J. Steinhardt
Published Date:
Sep 29, 2022

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The Securities and Exchange Commission has settled with 16 Wall Street firms that it charged with “widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.”

The 15 broker-dealers and one affiliated investment adviser “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 penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters,” according to the SEC's statement announcing the settlements.

The following eight firms (and five affiliates) agreed to pay penalties of $125 million each:

• Barclays Capital Inc.;
• BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
• Citigroup Global Markets Inc.;
• Credit Suisse Securities (USA) LLC;
• Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
• Goldman Sachs & Co. LLC;
• Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
• UBS Securities LLC together with UBS Financial Services Inc.

In addition, Jefferies LLC and Nomura Securities International, Inc. agreed to pay penalties of $50 million each, and Cantor Fitzgerald & Co. agreed to pay a $10 million penalty.

“The SEC staff’s investigation uncovered pervasive off-channel communications,” finding that “[f]rom January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messaging applications on their personal devices. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records relating to their businesses, the firms’ actions likely deprived the Commission of these off-channel communications in various Commission investigations.”

These actions by the 15 broker-dealers violated “certain record-keeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations,” the statement read. Investment advisor DWS Investment Management Americas, Inc. “was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.”

“In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured,” the statement continued. “The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.”

In a separate but related action, the Commodity Futures Trading Commission (CFTC) “issued orders simultaneously filing and settling charges against swap dealer and futures commission merchant (FCM) affiliates of 11 financial institutions for failing to maintain, preserve, or produce records that were required to be kept under CFTC record-keeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.”

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