SEC Charges Broker-Dealers and Investment Advisers for Violating Recordkeeping Regulations

The Securities and Exchange Commission (SEC) has today announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for not properly maintaining or preserving electronic communication records. These firms agreed to pay a combined penalty of $79 million, and have begun making necessary changes to their compliance policies and procedures. The SEC’s investigation revealed that employees of these firms had been communicating over personal text messages in relation to their respective businesses, without these messages being retained or preserved as required by the federal securities laws. The firms that self-reported the violations were subject to smaller penalties, providing an incentive to own up to errors made. As part of its enforcement orders, the SEC is requiring the ten firms to retain independent compliance consultants to carry out a comprehensive review of existing policies for dealing with non-compliance by employees. In addition to the enforcement actions by the SEC, four of the firms are also facing enforcement action from the Commodity Futures Trading Commission for related conduct. Investigations into the violations were conducted by staff from the SEC's New York Regional Office and Chicago Regional Office, while the cases were supervised by Thomas P Smith Jr and Paul A Montoya from the former, and Kathryn A Pyszka from the latter.