Ten sell-side firms have been fined a combined US$289 million by the US Securities and Exchange Commission (SEC) for violating recordkeeping provisions.
The ten broker-dealers and one dually registered broker-dealer and investment advisor are: Wells Fargo Securities, together with Wells Fargo Clearing Services, and Wells Fargo Advisors Financial Network, which agreed to pay a US$125 million penalty; BNP Paribas Securities and SG Americas Securities have each agreed to pay penalties of US$35 million; BMO Capital Markets and Mizuho Securities USA have each agreed to pay penalties of US$25 million; Houlihan Lokey Capital has agreed to pay a US$15 million penalty; Moelis & Company and Wedbush Securities have each agreed to pay penalties of US$10 million; and SMBC Nikko Securities America has agreed to pay a US$9 million penalty.
Gurbir Grewal, director of the SEC’s division of enforcement, said, “To date, the Commission has brought 30 enforcement actions and ordered over US$1.5 billion in penalties to drive this foundational message home. And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not.”
The SEC uncovered “pervasive and longstanding” communications made via messaging platforms on personal devices. These “off-channel” communications, made through platforms such as WhatsApp, Signal and iMessage, were not kept by employees’ firms in violation of the Securities Exchange Act 1934, and were therefore unavailable to the SEC if it was to require them.
The failures involved employees at multiple levels of authority, the SEC said, including supervisors and senior executives.
Grewal added that recordkeeping failures such as these undermine the regulator’s ability to exercise effective regulatory oversight, often at the expense of investors.
“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements and are implementing measures to prevent future similar violations.”
Wedbush Securities was also charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
The firms also agreed to retain independent compliance consultants to conduct reviews of their policies relating to the retention of electronic communications on personal devices and their respective frameworks for addressing non-compliance by employees.
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