SEC’s Fines Firms $79 Million for Recordkeeping Lapses

SEC’s Fines Firms $79 Million for Recordkeeping Lapses

Time Stamp: September 29, 2023 4:52 PM
Source Node: 2299937

The Securities and Exchange Commission (SEC) has imposed
penalties totaling $79 million on ten firms for allegations of inadequate
recordkeeping. The regulator said the crackdown had exposed a trend
of inadequate electronic communication maintained across broker-dealers and
investment advisers.

In a decisive move, the SEC took action against five
broker-dealers, three dually registered broker-dealers and investment advisers,
and two affiliated investment advisers for failing to maintain and preserve
electronic communications properly. These firms have admitted responsibility,
acknowledging that their actions violated recordkeeping provisions stipulated
by federal securities laws.

Gurbir Grewal, the Director of the
SEC’s Division of Enforcement, said: “One of the orders included in today’s announced
actions is not like the others. There are real benefits to self-reporting,
remediating and cooperating.”

The penalties are as follows: Interactive Brokers Corp. and
Interactive Brokers LLC (together, Interactive Brokers) face a penalty of $35 million. Robert W. Baird & Co. Inc. was slapped with a penalty of $15 million, while William Blair & Company LLC and William Blair Investment Management
LLC (WBIM) agreed to pay $10 million in penalties.

Besides that, Nuveen Securities LLC is facing a penalty
worth $8.5 million, while Fifth Third Securities Inc. has been ordered to pay
$8 million. Perella Weinberg Partners LP (Perella Weinberg), Tudor, Pickering,
Holt & Co. Securities LLC (TPH), and Perella Weinberg Partners Capital
Management LP (Perella Weinberg Capital), who self-reported, were penalized
$2.5 million.

The SEC discovered widespread off-channel communications within
all the 10 firms. The broker-dealers confessed that since at least 2019, their
employees have been using personal text messages for business-related
discussions, while investment advisers admitted to sending and receiving
off-channel communications concerning investment recommendations and advice.

SEC Enforces Compliance Measures

In addition to the financial penalties, the SEC ordered each
firm to cease-and-desist from any future violations of relevant recordkeeping
provisions. Furthermore, these firms must retain independent compliance
consultants to conduct a review of their policies.

In a separate report, Interactive Brokers Corp. and
Interactive Brokers LLC are set to pay a civil monetary penalty of $20 million following an enforcement action by the Commodity Futures Trading Commission
(CFTC). The penalty results from their alleged failure to maintain and preserve
crucial records mandated by CFTC recordkeeping requirements, a lapse
in supervising matters about their roles as CFTC registrants, and procedures
related to electronic communication retention on personal devices.

“The order also finds the widespread use of unapproved
communication methods violated Interactive Brokers’ internal policies and
procedures, which generally prohibited business-related communication taking
place via unapproved methods,” the CFTC said.

The Securities and Exchange Commission (SEC) has imposed
penalties totaling $79 million on ten firms for allegations of inadequate
recordkeeping. The regulator said the crackdown had exposed a trend
of inadequate electronic communication maintained across broker-dealers and
investment advisers.

In a decisive move, the SEC took action against five
broker-dealers, three dually registered broker-dealers and investment advisers,
and two affiliated investment advisers for failing to maintain and preserve
electronic communications properly. These firms have admitted responsibility,
acknowledging that their actions violated recordkeeping provisions stipulated
by federal securities laws.

Gurbir Grewal, the Director of the
SEC’s Division of Enforcement, said: “One of the orders included in today’s announced
actions is not like the others. There are real benefits to self-reporting,
remediating and cooperating.”

The penalties are as follows: Interactive Brokers Corp. and
Interactive Brokers LLC (together, Interactive Brokers) face a penalty of $35 million. Robert W. Baird & Co. Inc. was slapped with a penalty of $15 million, while William Blair & Company LLC and William Blair Investment Management
LLC (WBIM) agreed to pay $10 million in penalties.

Besides that, Nuveen Securities LLC is facing a penalty
worth $8.5 million, while Fifth Third Securities Inc. has been ordered to pay
$8 million. Perella Weinberg Partners LP (Perella Weinberg), Tudor, Pickering,
Holt & Co. Securities LLC (TPH), and Perella Weinberg Partners Capital
Management LP (Perella Weinberg Capital), who self-reported, were penalized
$2.5 million.

The SEC discovered widespread off-channel communications within
all the 10 firms. The broker-dealers confessed that since at least 2019, their
employees have been using personal text messages for business-related
discussions, while investment advisers admitted to sending and receiving
off-channel communications concerning investment recommendations and advice.

SEC Enforces Compliance Measures

In addition to the financial penalties, the SEC ordered each
firm to cease-and-desist from any future violations of relevant recordkeeping
provisions. Furthermore, these firms must retain independent compliance
consultants to conduct a review of their policies.

In a separate report, Interactive Brokers Corp. and
Interactive Brokers LLC are set to pay a civil monetary penalty of $20 million following an enforcement action by the Commodity Futures Trading Commission
(CFTC). The penalty results from their alleged failure to maintain and preserve
crucial records mandated by CFTC recordkeeping requirements, a lapse
in supervising matters about their roles as CFTC registrants, and procedures
related to electronic communication retention on personal devices.

“The order also finds the widespread use of unapproved
communication methods violated Interactive Brokers’ internal policies and
procedures, which generally prohibited business-related communication taking
place via unapproved methods,” the CFTC said.

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