US SEC Penalizes 16 Top Firms over $1.1B for Recordkeeping Failures

The United States Securities and Exchange Commission (SEC) on Tuesday announced that 15 broker-dealers and one affiliated investment adviser have agreed to pay combined penalties of over $1.1 billion for their recordkeeping failures.

The American regulator said it uncovered “pervasive off-channel communications” in the firms.

SEC explained, “From 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.”

The regulator said it charged the 16 business organizations for “widespread and long-standing failures” to “maintain and preserve [their] electronic communications.”

The charged firms include the following eight firms: Barclays Capital Inc., Bank of America (BofA) Securities Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, and UBS Securities LLC.

Of these eight firms, five were charged alongside with their affiliates: Merrill Lynch, Pierce, Fenner & Smith Inc. (BofA), DWS Distributors Inc. (Deutsche Bank Securities), DWS Investment Management Americas, Inc. (Deutsche Bank Securities), Morgan Stanley Smith Barney LLC (Morgan Stanley & Co); and UBS Financial Services Inc. (UBS Securities LLC).

In addition, the SEC disclosed that Jefferies LLC, Nomura Securities International, Inc., and Cantor Fitzgerald & Co were also charged.

Breakdown of the Penalty

According to the market supervisor, while the first eight firms and their five affiliates have agreed to pay penalties of $125 million each, Jefferies LLC and Nomura Securities International have acceded to paying penalties of $50 million each.

On the other hand, Cantor Fitzgerald & Co., an investment bank and brokerage company, agreed to pay a $10 million penalty.

SEC explained, “Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations.

“DWS Investment Management Americas, Inc., the investment adviser, 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.”

The watchdog noted that the firms admitted to violating recordkeeping provisions of the country’s federal securities laws and have begun implementing improvements to their compliance policies and procedures.

SEC also noted that the derivatives market regulator, the Commodity Futures Trading Commission, announced settlements with the firms for related conduct.

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