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. Many of the violations were related to “off-channel” communications by firm employees, including personal text messages, that were not preserved. The firms agreed to pay combined penalties of $79 million and have begun implementing improvements to their compliance policies and procedures to address these violations.
- Interactive Brokers agreed to pay a $35 million penalty
- Robert W. Baird agreed to pay a $15 million penalty
- William Blair & Co. agreed to pay a $10 million penalty
- Nuveen Securities agreed to pay an $8.5 million penalty
- Fifth Third Securities agreed to pay an $8 million penalty
- Perella Weinberg Partners agreed to pay a $2.5 million penalty.
The SEC noted that Parella Weinberg and its affiliates paid a lower penalty in part because the firm self-reported its violation. “One of the orders included in today’s announced actions is not like the others,” said Gurbir Grewal, director of the SEC’s Division of Enforcement. “There are real benefits to self-reporting, remediating, and cooperating.”
The SEC’s investigations uncovered pervasive and longstanding off-channel communications at all 10 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019, their employees communicated through personal text messages about the business of their employers, and the investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations or proposals made.
The firms did not maintain or preserve a majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, certain of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior managers.
Interactive Brokers, Baird, William Blair, Nuveen, Fifth Third, Perella Weinberg, and TPH were each charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations. Baird, William Blair, WBIM, Fifth Third, and Perella Weinberg Capital were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain independent 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.
Separately, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.
Crackdown on ‘Off-Channel’ Communications
The charges are a continuation of a crackdown by the SEC on the failure to police text messaging among employees at financial firms as part of their recordkeeping compliance requirements. In August, the SEC announced charges against 11 other firms–including Wells Fargo, BNP Paribas Securities, BMO Capital Markets, and others, for similar recordkeeping violations.
“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets. To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home. And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement in a statement announcing the August charges. “So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate, and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.” 
Joseph McCafferty is editor & publisher of Compliance Chief 360°