February 19, 2024
What happened?
On February 9, 2024, the SEC announced charges against five broker-dealers, seven dual registrants, and four advisers for recordkeeping violations related to electronic communications. The firms admitted to violating the recordkeeping provisions of federal securities laws and agreed to pay a combined $81 million in civil penalties, according to the SEC’s press release.
The four investment advisers admitted that their employees sent and received off-channel communications about investment recommendations and advice. The firms violated securities laws by failing to retain most of these communications. The SEC found that employees at multiple levels of authority were involved in the off-channel communications, “including supervisors and senior managers.”
This enforcement also highlights the SEC’s emphasis on self-reporting. Of the 16 firms charged, Huntington Investment Company—the only firm to self-report—was required to pay a $1.25 million penalty, whereas the next-lowest penalty (paid by a firm that did not self-report) was $8 million. “Once again, one of these orders is not like the others,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Huntington’s penalty reflects its voluntary self-report and cooperation.”
Today’s enforcement is the most recent outcome of the SEC’s focus on electronic communications. Prior enforcements include charges against 10 firms on September 29, 2023 (combined penalties: $79 million), 16 firms on September 27, 2023 (combined penalties: $1.1 billion), and 11 firms on August 8, 2023 (combined penalties: $289 million). Like these past enforcements, the SEC noted that the firms charged today had “widespread and longstanding failures” in complying with recordkeeping requirements involving “employees at multiple levels of authority, including supervisors and senior managers.”
What does this mean for me?
The SEC has continued to scrutinize registrants’ use of off-channel communications. If you have not already done so, consider reviewing your policies and procedures to make sure your firm maintains a list of approved communication platforms and procedures for retaining communications from those platforms. Employees should also be trained on the use of approved communication platforms.
Fairview provides comprehensive and ongoing compliance services, including comprehensive marketing and advertising review and complete examination support. Contact us today for additional information about maintaining your compliance program in an ever-changing regulatory environment.
