Twenty-Six Firms Settle Charges for SEC/CFTC Recordkeeping Failures
Commentary by Steven Lofchie
Twenty-six financial firms settled SEC charges for failing to preserve their employees' electronic communications. The firms agreed to pay combined civil penalties of $392.75 million.
According to an SEC press release, "each of the SEC's investigations uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications, at these firms." The SEC stated that the failures "involved personnel at multiple levels of authority, including supervisors and senior managers," and that firms admitted that their personnel "sent and received off-channel communications that were records required to be maintained under the securities laws."
The firms settled the charges for violating recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. The firms also settled charges for failing to reasonably supervise their personnel. In addition to the financial penalties, each firm was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.
Separately, three firms settled with the CFTC for allegedly similar violations. In a dissenting statement, CFTC Commissioner Caroline D. Pham, said that "there was no evidence in the administrative record involving CFTC [registered associated persons] and the specific types of records that the [introducing brokers] are required to maintain. I am unable to support an enforcement action that does not have any evidence that the alleged violations actually occurred." She criticized the CFTC for "piggybacking off the SEC's investigation ... all without any evidence of a CFTC violation."
Commentary
These actions reflect continuing attention to electronic communications recordkeeping failures as they follow on prior SEC and CFTC enforcement actions against other firms for the same violations.