Several Wall Street banks were hit with substantial fines by two regulatory agencies on Tuesday for utilizing “off-channel” messaging services and failing to properly preserve the communications wherein deals, trades, and other business were discussed.
The Securities and Exchange Commission (SEC) is imposing fines totaling $289 million across nine firms, while the Commodity Futures Trading Commission (CFTC) is imposing $260 million in fines — resulting in a combined total penalty of $549 million.
The agencies found that employees frequently used personal devices and platforms like iMessage, WhatsApp, and Signal to discuss business matters, according to the complaint, but failed to retain most of the communications, violating securities laws, the SEC press release noted.
The SEC has taken action against 10 broker-dealer firms and one dually registered broker-dealer and investment adviser for “longstanding failures” to “preserve electronic communications” that occurred when discussing business. The SEC’s investigation revealed widespread and prolonged use of unofficial communication channels at all 11 firms.
Among the fined firms, Wells Fargo and its affiliates (Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network) agreed to pay $125 million, while BNP Paribas Securities and SG Americas Securities will pay $35 million each. Other firms facing fines are BMO Capital Markets Corp. and Mizuho Securities USA ($25 million each), Houlihan Lokey Capital ($15 million), Moelis & Company and Wedbush Securities ($10 million each), and SMBC Nikko Securities America ($9 million).
The SEC stresses that adhering to recordkeeping regulations is crucial for safeguarding investors and maintaining well-functioning markets.
“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws,” Sanjay Wadhwa, SEC deputy director of enforcement, said in a statement. “Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors.”
The 11 firms involved admitted to violating “crucial requirements” and are taking steps to prevent future violations, Wadhwa added.
Gurbir S. Grewal, director of the SEC’s division of enforcement, advises firms to self-report and rectify to avoid harsher consequences.
“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.”
