SEC brings the hatchet down on Wall Street’s bad recordkeeping with $289m in fines
The US Securities and Exchange Commission (SEC) has charged 11 Wall Street firms for “pervasive and longstanding ‘off-channel’ communications” in offences dating back to 2019.
SEC fines 11 Wall Street firms for bad recordkeeping
The regulator’s investigation found that the firms’ employees had used messaging platforms, including iMessage, WhatsApp and Signal, on their personal devices to communicate matters of business. This offence was committed across multiple levels of seniority, from supervisors to senior executives.
Furthermore, the firms failed to “maintain or preserve” these communications, as required by federal securities law, thus depriving the insight of the SEC’s investigation.
Taking action
The SEC has issued the group with a fine totalling $289 million for violating the broker-dealer recordkeeping provisions outlined in the Securities Exchange Act of 1934 and for “failing to reasonably supervise with a view to preventing and detecting those violations”.
The regulator’s announcement confirmed that Wells Fargo Securities LLC, Wells Fargo Advisors Financial Network LLC and Wells Fargo Clearing Services LLC are to pay a total penalty of $125 million; BNP Paribas Securities Corp. and SG Americas Securities LLC are to pay $35 million each; and BMO Capital Markets Corp. and Mizuho Securities USA LLC are to pay $25 million each.
Additionally, Houlihan Lokey Capital, Inc. has been fined $15 million; Moelis & Company LLC has been fined $10 million; and SMBC Nikko Securities America, Inc. will pay $9 million.
As a dually registered broker-dealer and investment adviser, Wedbush Securities Inc. has been issued with additional charges for failing to comply with the Investment Advisers Act of 1940 and will pay a penalty of $10 million.
The SEC has leveraged 30 enforcement actions to date against those who do not comply with recordkeeping requirements, generating a total of $1.5 billion in fines in the process.
HSBC Securities and Scotia Capital were landed with $15 million and $7.5 million penalties respectively in May for their recordkeeping failures, while the SEC issued an even larger $1.1 billion fine to 16 firms last September for the same offence.
Words of advice
Gurbir Grewal, director of the SEC’s division of enforcement, urges firms to “self-report, cooperate and remediate” while underscoring compliance as “essential to investor protection and well-functioning markets”.
“If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling,” Grewal says.
“Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors,” adds Sanjay Wadhwa, deputy director of enforcement at the SEC.
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws.”
