SEC Imposes Penalties on Wall Street Firms for Recordkeeping Failures

by Warren Seah

The Securities and Exchange Commission (SEC) has announced that it is imposing penalties on multiple Wall Street firms due to widespread recordkeeping failures and the inappropriate use of text messaging apps by employees for conducting business. A total of 16 companies have agreed to pay over $81 million in combined penalties to settle charges brought by the SEC.

As part of its ongoing efforts to ensure regulatory compliance, the SEC has been urging firms to proactively report issues before they are subjected to investigations. In recognition of their voluntary self-reporting and cooperation, one of the penalized companies, The Huntington Investment Company, received a substantially lower penalty of $1.25 million compared to an average penalty of $5.3 million for the remaining 15 firms.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of recordkeeping requirements in monitoring and enforcing compliance with federal securities laws. He stated, “Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements… Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation.”

A spokesperson for Huntington expressed satisfaction with the resolution, highlighting the company’s commitment to compliance and its focus on customer well-being.

The SEC clarified that the penalized firms have admitted to the facts presented in their regulatory orders and acknowledged violations of recordkeeping provisions under federal securities laws.

Among the 16 firms, the largest penalty of $16.5 million was imposed on units of Northwestern Mutual. Northwestern Mutual operates an independent broker-dealer and an investment advisor in addition to being an insurer.

SEC Fines Northwestern and Other Financial Institutions Over Off-Channel Communications

The Securities and Exchange Commission (SEC) has imposed fines on several financial institutions, including Northwestern, for engaging in off-channel communications related to business activities. These communications, which involved investment advice to clients, were not properly documented and preserved, thereby hindering the SEC’s investigations.

Northwestern, Guggenheim Securities, Oppenheimer & Co., Cambridge Investment Research, Key Investment Services, KeyBanc Capital Markets, insurer Lincoln Financial Group, and U.S. Bancorp’s broker-dealer have all agreed to pay substantial penalties for their involvement in off-channel communications.

Guggenheim Securities will pay a penalty of $15 million, while Oppenheimer & Co. will pay $12 million. Cambridge Investment Research and Key Investment Services, in conjunction with KeyBanc Capital Markets, will each pay $10 million as part of the settlement.

Cambridge Investment Research has taken measures to address these concerns by hiring an independent consultant to evaluate their communication practices. The firm’s spokesperson has stated that this settlement follows similar agreements reached between the SEC and other companies.

On the other hand, two units of Lincoln Financial Group and U.S. Bancorp’s broker-dealer will pay penalties of $8.5 million and $8 million respectively. A representative from U.S. Bancorp stated that the company is satisfied with resolving the matter and has cooperated fully with the SEC’s investigation. They further expressed the company’s commitment to enhancing technology and oversight to meet regulatory expectations and better serve their clients.

The SEC’s ongoing investigation into off-channel communications has resulted in penalties for numerous banks, brokerages, and investment advisory firms. Notably, in December 2021, JPMorgan Chase was fined $200 million for recordkeeping violations stemming from employees’ use of personal devices for official business. Subsequently, in the following year, the SEC and the Commodity Futures Trading Commission issued penalties totaling $1.8 billion against 16 companies, including industry giants like Morgan Stanley and Goldman Sachs.

The implications of these fines and the increasing scrutiny from regulatory bodies highlight the importance of maintaining proper recordkeeping practices and adhering to communication guidelines within the financial industry.

You may also like

Leave a Comment