September 29, 2023

10 Firms Fined for Failing to Preserve Electronic Communications

Five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers settled charges with the SEC and CFTC for recordkeeping violations after failing to preserve electronic business communications made using their personal devices.

In separate Orders, the SEC and the CFTC found that firm employees communicated using their personal devices via unapproved communication platforms, including text message, WhatsApp and GroupMe.

The SEC and the CFTC stated that the employees did not preserve the business-related written communications sent and received using such off-channel communication platforms. The SEC and the CFTC stated that some directors and officers responsible for supervising junior employees failed to comply with policies regarding non-firm-approved methods on their own personal devices. According to the Orders, due to the broker-dealers’ inadequate record maintenance, regulatory investigations were "likely impacted," negatively affecting the agencies’ ability to carry out regulatory functions.

As a result, the SEC found that the broker-dealers violated Exchange Act Sections 15(b)(4)(e) ("Registration and regulation of brokers and dealers") and 17(a) ("Records and Reports") and Rule 17a-4(b)(4) ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers") thereunder. The CFTC concluded that the firms violated CEA Section 4g ("Reporting and recordkeeping") and Rules 1.31 ("Regulatory records; retention and production"), 1.35 ("Records of commodity interest and related cash or forward transactions") and 166.3 ("Supervision").

To settle the charges with the SEC, the firms agreed to (i) cease and desist from further regulatory violations, (ii) a censure, (iii) comply with the undertakings set forth in the Order and (iv) pay a civil money penalty totaling $79,000,000. To settle the charges with the CFTC, the firms agreed to (i) cease and desist from further regulatory violations and (ii) pay a civil money penalty of $20,000,000.


CFTC Commissioner Kristin N. Johnson said that "cases such as these are really about the culture of compliance at these companies, or lack thereof." She noted that the "people whose job description included ensuring proper compliance . . . were not only tolerating prohibited technology use, but also engaging in it themselves."

CFTC Commissioner Christy Goldsmith Romero called the enforcement action "another victory in holding Wall Street institutions accountable for their pervasive use of unauthorized communication methods." She urged financial institutions to consider the enforcement action a "wakeup call . . . to reset the tone at the top."