The Securities and Exchange Commission announced Tuesday that it has charged 15 broker/dealers and one affiliated investment adviser for “widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.”
According to the SEC release, a staff investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms’ personnel. These personnel included senior and junior investment bankers and debt and equity traders.
From January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messaging applications on their personal devices, the release states. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws.
The release says that by failing to maintain and preserve the required records relating to their business, the firms’ actions likely deprived the SEC of off-channel communications in various agency investigations. The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives, the release adds.
The following eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
- Barclays Capital Inc.;
- Bank of America Securities Inc., together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
- Citigroup Global Markets Inc.;
- Credit Suisse Securities (U.S.) 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.
The following two firms have agreed to pay penalties of $50 million each:
- Jefferies LLC; and
- Nomura Securities International, Inc.
Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.
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, the release states. 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 firms 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, the release states.
In addition to the financial penalties, each firm was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured, the release states. The firms also agreed to retain compliance consultants to 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.
Separately, the Commodity Futures Trading Commission has also announced settlements with the firms for related conduct.
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