SEC and CFTC Charge Firms Over $118 Million in Penalties for Widespread Record-Keeping Violations

The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have charged a total of 12 different financial firms, including broker-dealers, investment advisers, and a dually-registered firm, for widespread and longstanding failures to maintain and preserve electronic communications as required by federal laws.

The 12 firms will pay a combined $118.225 million in civil penalties to settle the SEC's and CFTC's charges. One additional firm, Qatalyst Partners LP, will not pay a penalty after self-reporting its violations, cooperating with the investigations, and demonstrating substantial compliance efforts.

"Today's enforcement actions reflect the range of remedies that parties may face for violating the record-keeping requirements of the federal securities and commodities laws," said Gurbir S. Grewal, Director of the SEC's Division of Enforcement. "Widespread and longstanding failures, including where those failures potentially hinder the Commission's investor protection function by compromising a firm's response to subpoenas, may result in robust civil penalties."

The SEC found that 12 firms and their personnel extensively used unapproved "off-channel" communication methods, such as personal text messages and emails, to conduct business that should have been recorded and preserved. This deprived the SEC of access to these communications during investigations.

The CFTC separately charged Canadian Imperial Bank of Commerce (CIBC) (one of the twelve fined by the SEC also) with failing to maintain and preserve records required under CFTC rules and failing to diligently supervise matters related to its CFTC-registered business. The CFTC order imposes a $30 million civil penalty on CIBC, which admitted the facts in the order.

The failures at the 12 SEC-charged firms involved personnel at multiple levels of authority, including supervisors and senior managers. However, the SEC recognized firms that self-reported violations and cooperated, such as Qatalyst, Canaccord Genuity, and Regions Securities, which received reduced or waived penalties.

As part of the settlements, the firms agreed to cease and desist from future record-keeping violations, be censured, and implement improvements to their compliance policies and procedures. Ten of the firms will also retain compliance consultants to review their practices.

The enforcement actions underscore the SEC's and CFTC's continued focus on ensuring financial firms maintain proper records and comply with securities and commodities laws, even as communication methods evolve. Firms are on notice that widespread, long-term record-keeping failures can result in substantial penalties, but self-reporting and cooperation can mitigate the consequences.

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