SEC Charges 10 Firms with Extensive Recordkeeping Failures

The Securities and Exchange Commission (SEC) has taken decisive action against a group of firms, announcing charges against ten entities comprising five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers. These firms have been accused of widespread and long-standing failures to adequately maintain and preserve electronic communications, resulting in violations of recordkeeping provisions under federal securities laws. In response to the charges, the firms have collectively agreed to pay substantial penalties amounting to $79 million. Furthermore, they have initiated comprehensive enhancements to their compliance policies and procedures to address the deficiencies identified.

The firms facing penalties and their respective fines include:

• Interactive Brokers Corp. and affiliate Interactive Brokers LLC, collectively known as Interactive Brokers, which will pay a penalty of $35 million.
• Robert W. Baird & Co. Inc., facing a $15 million penalty.
• William Blair & Company LLC and affiliate William Blair Investment Management LLC (WBIM), together agreeing to pay a $10 million penalty.
• Nuveen Securities LLC, accepting an $8.5 million penalty.
• Fifth Third Securities Inc., agreeing to pay $8 million.
• Perella Weinberg Partners LP, Tudor, Pickering, Holt & Co. Securities LLC (TPH), and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), collectively paying a penalty of $2.5 million.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted the significance of self-reporting and cooperation in these cases, stating, "One of the orders included in today’s announced actions is not like the others. There are real benefits to self-reporting, remediating, and cooperating."

The investigations conducted by the SEC revealed enduring and systemic off-channel communications within all ten firms. Employees were found to have utilized personal text messages for business-related discussions. Broker-dealer firms admitted that such communications took place since at least 2019, while investment adviser firms acknowledged that off-channel communications encompassed recommendations and advice. Unfortunately, the firms did not adequately maintain or preserve a significant portion of these off-channel communications, thereby violating federal securities laws. This omission deprived the SEC of critical information in various investigations. Notably, employees at various organizational levels, including supervisors and senior managers, were involved in these infractions.

Each of the aforementioned firms has been charged with violations of specific recordkeeping provisions under the Securities Exchange Act of 1934. Additionally, they have been charged with failing to reasonably supervise to prevent and detect these violations. Baird, William Blair, WBIM, Fifth Third, and Perella Weinberg Capital also face charges related to violations of certain recordkeeping provisions under the Investment Advisers Act of 1940, as well as failures to supervise effectively.

In addition to the substantial financial penalties, all firms have been subjected to cease and desist orders against future violations of relevant recordkeeping provisions and have received censures. Furthermore, the firms have committed to engaging independent compliance consultants to perform comprehensive reviews of their policies and procedures regarding the retention of electronic communications found on personal devices. These consultants will also assess the firms' frameworks for addressing non-compliance by their employees in relation to these policies and procedures.

Separately, the Commodity Futures Trading Commission (CFTC) has also announced settlements with Interactive Brokers concerning related conduct.