Twenty-six financial firms are on the hook for $392.75 million in fines for securities recordkeeping violations. Several of the brokers, dealers and investment advisers made themselves a target by not keeping records of their communications.
“Off-channel” communication enforcement efforts are up under the Securities & Exchange Commission (SEC). The feds stressed the need for greater transparency by financial firms and banks at the start of the Biden administration. And the SEC clearly isn’t hesitating to drop the hammer on firms that can’t show electronic records or a paper trail of conversations related to investing, trades and sell-offs.
Traders commonly get themselves into trouble by texting rather than using company email or other forms of monitored channels. Texting is obviously a quick and easy way to communicate in any fast-paced business sector. But financial pros may need regular reminders that unmonitored texting can land their firms in hot water.
Some firms won’t give staffers who break the rules a second chance. Goldman Sachs fired employees who “text-traded” and put the company at risk for enforcement and litigation a couple of years back. Most big banks like Goldman Sachs explicitly forbid off-channel business communications in their company policies.
Securities Rule Breakers Turned Themselves In
The 26 firms admitted their “personnel sent and received off-channel communications that were records required to be maintained under securities laws,” according to the SEC press release. “[F]ailure to maintain and preserve required records … involved personnel at multiple levels of authority, including supervisors and senior managers.” Companies were charged under the Securities Exchange Act, the Investment Advisers Act, and in some cases both.
Ameriprise Financial Services, Edward D. Jones & Company, LPL Financial and Raymond James & Associates are reeling from $50 million apiece in fines. The SEC noted that off-channel communications dated back several years and represented “a pattern” of behavior.
The SEC encourages brokers, dealers and advisers to notify the SEC of violations to reduce the amount of a penalty and because it’s the smart thing to do. To wit, SEC enforcement director Gurbir Grewal noted that several of the companies that were fined had “differentiated themselves by self-reporting prior to the staff’s investigation, demonstrating once again the real benefits of proactive cooperation.”
