SEC Settles with Sixteen Firms for Charges of Widespread Recordkeeping Failures

Who may be interested: Registered Investment Advisers, Broker-Dealers, Registered Investment Companies, Boards of Directors

Quick Take: The SEC recently settled charges against sixteen firms, including five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers (Firms), for widespread recordkeeping deficiencies related to the Firms’ and their employees’ failure to maintain and preserve copies of electronic communications. These collective enforcement actions are the latest in the SEC’s sweep of off-channel communications recordkeeping violations.


The SEC Orders found that employees at the Firms, including senior employees with high levels of authority, were routinely communicating through various off-channel messaging applications to discuss business matters of the Firms, with respect to the broker-dealer Firms, and recommendations made or proposed to be made and advice given or proposed to be given, with respect to the investment adviser Firms. Records of these communications often were not maintained or preserved by the Firms, which, the Orders noted, likely deprived the SEC of relevant communications in various SEC investigations.  

The SEC Orders found that as a result of such conduct, the Firms violated their own internal policies and procedures, and applicable recordkeeping rules under the Exchange Act and the Advisers Act. The SEC also charged the firms with failing to reasonably supervise their employees with a view to preventing and detecting such violations. 

The Firms admitted to the facts set forth in their respective SEC Orders and agreed to cease and desist from further violations of the recordkeeping rules under the Exchange Act and the Advisers Act; retain independent compliance consultants to review their policies and procedures; and pay combined civil penalties totaling approximately $81 million.  

For further discussion of how firms can mitigate risks presented by off-channel communications see Seward & Kissel’s webinar on the topic here. See also Seward & Kissel’s publications covering the SEC’s prior enforcement actions involving off-channel communications here and here.  

The SEC’s press release can be found here.  

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.