Firm Settles SEC and CFTC Charges for "Unauthorized Communications"

A swap dealer and its affiliated broker-dealer/FCM settled simultaneous SEC and CFTC charges for failing to (i) prohibit the use of unapproved communication methods, (ii) maintain and produce required records and (iii) adequately supervise its businesses.

The SEC Order and the CFTC Order found that from January 2020 to December 2021, employees of the firms (including management) made "pervasive and longstanding use of off-channel communications" on messaging apps like "WhatsApp" and other social media platforms. The Orders stated that the firm failed to preserve the majority of these "off-channel" communications as required.

The SEC determined that the Firm's actions violated Section 17(a) ("Records and Reports") of the Exchange Act and Exchange Act Rule 17a-4(b)(4) ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers"). The CFTC determined that the Firm violated Sections 4g ("Reporting and recordkeeping"), 4s(f)(1)(C), 4s(g)(1) and (3), and 4s(h)(1)(B) ("Registration and regulation of swap dealers and major swap participants") of the CEA, and CFTC Regulations 1.31 ("Regulatory records; retention and production"), 1.35 ("Records of commodity interest and related cash or forward transactions"), 23.201(a) ("Required records."), 23.202(a)(1) and (b)(1) ("Daily trading records"), 23.602(a) ("Diligent supervision"), and 166.3 ("Supervision").

To settle the charges, the firm agreed to (i) cease and desist from further violations, (ii) an SEC censure, (iii) civil monetary penalties of $15 million (SEC) and $7.5 million (CFTC); and (iv) various assessments, undertakings and audits to improve supervisory and recordkeeping controls.