The Securities and Exchange Commission (SEC) recently issued
$81 million in total fines against 16 financial firms for widespread
recordkeeping failures. Examiners determined employees, including some in senior
leadership, engaged in “off-channel” communications and the mishandling of
electronic correspondence.
The firms were cited for failing to maintain and preserve
electronic communications records and using unapproved communications methods,
constituting multiple “pervasive and longstanding” violations of rules
implementing the Securities Act, including Rules 262(b)(2), 506(d)(2)(ii), and
602(e), as well as Rule 503(b)(2) of Regulation Crowdfunding.
“Today’s actions against
these 16 firms result from our continuing efforts to ensure that all regulated
entities comply with the recordkeeping requirements, which are essential to our
ability to monitor and enforce compliance with the federal securities laws,” SEC
Enforcement Director Gurbir Grewal said in a statement.
The SEC issued separate
orders to each of the firms, all of which admitted that, from at least 2019 or
2020, their employees communicated through personal text messages about their
employers’ business activities:
·
Northwestern Mutual Investment Services LLC,
together with Northwestern Mutual Investment Management Co. LLC and Mason
Street Advisors LLC (collectively, Northwestern Mutual), agreed to pay a
$16.5 million penalty;
·
Guggenheim Securities LLC, together with
Guggenheim Partners Investment Management LLC (collectively, Guggenheim),
agreed to pay a $15 million penalty;
·
Oppenheimer & Co. Inc. (Oppenheimer) agreed
to pay a $12 million penalty;
·
Cambridge Investment Research Inc.,
together with Cambridge Investment Research Advisors Inc. (collectively,
Cambridge), agreed to pay a $10 million penalty;
·
Key Investment Services LLC, together with
KeyBanc Capital Markets Inc. (collectively, Key), agreed to pay a $10 million
penalty;
·
Lincoln Financial Advisors Corp., together with
Lincoln Financial Securities Corp. (collectively, Lincoln), agreed to pay an
$8.5 million penalty;
·
U.S. Bancorp Investments Inc. (U.S.
Bancorp) agreed to pay an $8 million penalty; and
·
The Huntington Investment Co. together with
Huntington Securities Inc. and Capstone Capital Markets LLC (collectively,
Huntington), which self-reported and agreed to pay a $1.25 million penalty.
Grewal noted that Huntington’s
decision to voluntarily self-report and cooperate with the SEC in addressing
its compliance failures resulted in a more lenient penalty compared with those
issued to the firms whose regulatory violations were discovered by SEC
examiners.
The investment adviser
firms admitted that their employees, including supervisors and senior managers,
sent and received off-channel communications about recommendations and advice either
given or proposed to be given to clients. By failing to maintain and preserve
required records, the SEC concluded that some firms likely deprived SEC examiners
of many off-channel communications during investigations.
In some instances, employees used personal messaging
platforms like WhatsApp for business communications, circumventing official
channels and violating recordkeeping protocols.
The agency emphasized the importance of maintaining accurate
and accessible records, which serve as vital tools for oversight,
investigation, and enforcement. Failure to adhere to these standards not only
undermines investor confidence but also exposes firms to legal and reputational
risks.