The feds are cracking down on sketchy electronic recordkeeping: Firms fined millions

Several investment advisers and dealer-brokers are paying a whopping $79 million in fines because they couldn’t produce records of electronic communications.

The Securities and Exchange Commission (SEC) continues to focus its enforcement efforts on individuals and companies that don’t practice transparency at all times. Failure to preserve and be able to present relevant financial records is a punishable offense.

SEC investigators uncovered “pervasive and longstanding off-channel communications” and racked up $79M in fines against these entities:

• Interactive Brokers, which agreed to pay a $35 million fine
• Robert W. Baird & Company – $15 million
• William Blair & Company and affiliate William Blair Investment Management – $10 million
• Nuveen Securities – $8.5 million
• Fifth Third Securities – $8 million, and
• Perella Weinberg Partners (PWP), along with Tudor, Pickering, Holt & Company Securities LLC (TPH) and PWP Capital Management – $2.5 million (these companies self-reported which typically results in lower penalties from federal agencies such as the SEC).

What did these financial firms do wrong?

The broker-dealer firms admitted that, from at least 2019, employees communicated via personal text messages about company business dealings. The investment advisers admitted to sending and receiving “off-channel” communications regarding recommendations and advice.

In addition to text messages, off-channel communication may include social media and internet-based messaging platforms such as WhatsApp. 

To make matters worse, the firms didn’t keep the bulk of these communications. The firms were cited for violations of the Securities Exchange Act and the Investment Advisers Act.

The SEC isn’t about to slow down enforcement against firms that play fast and loose with securities laws. Two months back the commission announced $289 million in e-communication violations, which included a mammoth $125M ticket for Wells Fargo.