The U.S. Securities and Exchange Commission (SEC) announced that 11 financial firms, including broker-dealers and investment advisers, have agreed to pay more than $88 million in penalties to settle charges of failures to comply with federal record-keeping laws.
The SEC said in a Sept. 24 announcement that the violations were related to the improper use of unapproved electronic communication methods—known as “off-channel communications”—that the firms failed to preserve, potentially impeding the agency’s ability to conduct investigations.
The SEC’s enforcement actions targeted firms across the financial sector, with penalties ranging from $35 million for Stifel, Nicolaus & Company, and Invesco Distributors, to $325,000 for Focused Wealth Management. In total, the fines amount to $88.2 million.
The firms admitted to the conduct and agreed to implement improvements to their compliance policies.
“Today’s enforcement actions reflect the range of remedies that parties may face for violating the record-keeping requirements of the federal securities laws,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement. “Widespread and longstanding failures, including where those failures potentially hinder the commission’s investor protection function by compromising a firm’s response to SEC subpoenas, may result in robust civil penalties.”
The record-keeping violations spanned multiple years and involved the use of off-channel communication methods, including personal messaging applications, which were not approved by the firms for business communications. The use of these unapproved channels hindered the firms’ ability to maintain records, which is required under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
The SEC said the violations involved personnel at multiple levels, including senior management and supervisors. This noncompliance persisted even after the SEC announced its first record-keeping matters in 2021.
Despite this widespread noncompliance, one firm—Qatalyst Partners, a twelfth among the other 11 charged—will not pay a penalty because it was found to have taken substantial steps to address its own record-keeping failures, the SEC said. The firm conducted an internal investigation, self-reported its violations, cooperated fully with the agency’s probe, and demonstrated substantial compliance efforts.
“Firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties,” Grewal said. “Qatalyst took substantial steps to comply, self-reported, and remediated, and, therefore, received a no-penalty resolution.”
Two additional firms—Canaccord Genuity and Regions Securities—also self-reported their violations and were fined reduced penalties of $1.25 million and $750,000, respectively.
All 12 firms charged have admitted their failures and agreed to cease further violations of the relevant record-keeping laws. Ten of the firms will be required to hire compliance consultants to review their policies regarding the retention of electronic communications on personal devices. These consultants will also examine the firms’ frameworks for addressing non-compliance by employees.
