Two Broker-Dealer Firms Settle SEC Charges for "Unapproved Communications"

Two broker-dealer firms settled SEC charges for recordkeeping violations associated with the use of "off-channel" communications

In the Orders (see here and here,) the SEC found that the broker-dealers' employees (including management) made "widespread" use of unapproved "off-channel communications" on their personal devices both internally and externally through messaging apps such as WhatsApp and other social media platforms. The SEC stated that the broker-dealers failed to maintain and preserve the majority of these "off-channel" communications as required.

The SEC determined that the broker-dealers' 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").

To settle the charges, the broker-dealers agreed to (i) cease and desist from further violations, (ii) censures, (iii) pay civil monetary penalties of $15 million and $7 million respectively, and (iv) implement a range of remedial actions to improve supervisory and recordkeeping controls.