SEC Charges 10 Firms with Widespread Recordkeeping Failures

The Securities and Exchange Commission (SEC) has taken action by filing charges against multiple entities in the financial industry, including broker-dealers and investment advisers, for their extensive and longstanding failure to properly maintain and preserve electronic communications. These firms have admitted to the violations outlined in their respective SEC orders and have acknowledged that their actions contravened recordkeeping provisions stipulated by federal securities laws. In response, the firms have collectively agreed to pay substantial penalties totaling $79 million. Furthermore, they have initiated efforts to enhance their compliance policies and procedures to rectify these shortcomings.

The entities involved in this enforcement action and their respective penalties are as follows:

1. Interactive Brokers Corp. and affiliate Interactive Brokers LLC (referred to collectively as Interactive Brokers) have agreed to pay a penalty of $35 million.
2. Robert W. Baird & Co. Inc. will pay a penalty of $15 million.
3. William Blair & Company LLC and its affiliate William Blair Investment Management LLC (WBIM) have agreed to a penalty of $10 million.
4. Nuveen Securities LLC will pay a penalty of $8.5 million.
5. Fifth Third Securities Inc. has agreed to a penalty of $8 million.
6. Perella Weinberg Partners LP (Perella Weinberg), along with Tudor, Pickering, Holt & Co. Securities LLC (TPH) and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), which self-reported the violations, have consented to a penalty of $2.5 million.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, highlighted that one of the firms, Perella Weinberg, stood out in these actions due to its self-reporting, remediation efforts, and cooperation. He underscored the advantages of such proactive measures in addressing regulatory concerns.

The SEC’s investigations revealed pervasive and long-standing instances of off-channel communications across all 10 firms. The broker-dealers admitted that their employees had used personal text messages to discuss their employers’ business since at least 2019. Similarly, the investment adviser firms admitted that their employees engaged in off-channel communications related to recommendations and advice. However, these firms did not appropriately maintain or preserve the majority of these off-channel communications, thereby violating federal securities laws. In some cases, the failure to maintain these records hindered SEC investigations. The lapses occurred among employees at various organizational levels, including supervisors and senior managers.

Interactive Brokers, Baird, William Blair, Nuveen, Fifth Third, Perella Weinberg, and TPH were each charged with violating specific recordkeeping provisions of the Securities Exchange Act of 1934 and failing to reasonably supervise to prevent and detect these violations. Additionally, Baird, William Blair, WBIM, Fifth Third, and Perella Weinberg Capital were charged with breaching certain recordkeeping provisions of the Investment Advisers Act of 1940 and failing to reasonably supervise to prevent and detect these violations.

In addition to the substantial financial penalties, all of the firms were ordered to cease and desist from any future violations of the relevant recordkeeping provisions and received censures. They have also committed to retaining independent compliance consultants. These consultants will conduct comprehensive reviews of their policies and procedures concerning the retention of electronic communications on personal devices and the frameworks they employ to address non-compliance by their employees with these policies and procedures.

Separately, the Commodity Futures Trading Commission (CFTC) has announced settlements with Interactive Brokers related to similar conduct.

If you suspect your advisor mismanaged your money or committed negligence or fraud, call Sonn Law Group for a free consultation at 833-912-3000 today.