In the SEC case, charges were brought against 15 broker-dealers and one affiliated investment adviser for “widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications,” the SEC said.
The following eight firms and five affiliates will pay penalties of $125 million each:
- BofA Securities, together with Merrill Lynch, Pierce, Fenner & Smith;
- Barclays Capital;
- Citigroup Global Markets;
- Credit Suisse Securities (USA);
- Deutsche Bank Securities, together with DWS Distributors and DWS Investment Management Americas;
- Goldman Sachs;
- Morgan Stanley, together with Morgan Stanley Smith Barney; and
- UBS Securities, together with UBS Financial Services.
In addition, Jefferies and Nomura Securities International have agreed to pay penalties of $50 million each, and Cantor Fitzgerald has agreed to pay a $10 million penalty.
According to the SEC, from January 2018 through September 2021, the firms’ employees “routinely communicated about business matters using text messaging applications on their personal devices” and “did not maintain or preserve the substantial majority of these off-channel communications in violation of the federal securities laws.”
“By failing to maintain and preserve required records relating to their businesses, the firms’ actions likely deprived the Commission of these off-channel communications in various Commission investigations,” the SEC stated. “The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives.”
According to the SEC, the firms admitted the facts set forth in their respective SEC orders and acknowledged that their conduct violated recordkeeping provisions of the federal securities laws.
“The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures,” the SEC stated.
Each broker-dealer has been charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations. In addition to the financial penalties, each firm was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured.
Investment adviser DWS Investment Management Americas was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.
“These actions deliver a straightforward message to registrants: You are expected to abide by the Commission’s recordkeeping rules,” said Deputy Director of Enforcement Sanjay Wadhwa. “The time is now to bolster your record retention processes and to fix issues that could result in similar future misconduct by firm personnel.”
“Other broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies,” said Gurbir Grewal, Director of the SEC’s Division of Enforcement.
CFTC settlements
The CFTC announced separate settlements, in which it issued orders simultaneously filing and settling charges against swap dealer and futures commission merchant (FCM) affiliates of 11 financial institutions “for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements and failing to diligently supervise matters related to their businesses as CFTC registrants,” the agency said.
In the CFTC action, Bank of America will pay the highest penalty of $100 million, while the following financial institutions will pay a penalty of $75 million each:
- Barclays;
- Citi;
- Credit Suisse;
- Deutsche Bank;
- Goldman Sachs;
- Morgan Stanley; and
- UBS.
In addition, Nomura will pay a $50 million penalty, while Jeffries will pay $30 million, and Cantor Fitzgerald will pay a $6 million penalty.
In the CFTC case, the settling registrants admitted the facts detailed in the orders and have been ordered to cease and desist from further violations of recordkeeping and supervision requirements and engage in specified remedial undertakings. Bank of America and Nomura neither admitted nor denied certain specific findings of the CFTC Enforcement Division’s investigation.
“Each order finds that the swap dealer and/or FCM in question, for a period of years, failed to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal,” the CFTC stated. The firms generally did not maintain and preserve such written communications, as required, “and, therefore, could not provide them promptly to the CFTC when requested.”
“Each order further finds the widespread use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods,” the CFTC continued. “Further, some of the same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.