SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures

The Securities and Exchange Commission (SEC) has issued charges against ten broker-dealer firms and one dually registered broker-dealer and investment adviser due to systemic and persistent failures by these entities and their personnel to adequately maintain and preserve electronic communications. The firms have acknowledged their wrongdoing, agreeing that their actions violated the recordkeeping regulations stipulated by federal securities laws. These firms have collectively accepted to pay a combined total of $289 million in penalties, outlined as follows, and have already initiated measures to enhance their compliance protocols to rectify these infractions.

The penalties are as follows:

• Wells Fargo Securities, LLC, along with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, will pay a penalty of $125 million.
• BNP Paribas Securities Corp. and SG Americas Securities, LLC, will each pay a penalty of $35 million.
• BMO Capital Markets Corp. and Mizuho Securities USA LLC, will each pay a penalty of $25 million.
• Houlihan Lokey Capital, Inc., will pay a penalty of $15 million.
• Moelis & Company LLC and Wedbush Securities Inc., will each pay a penalty of $10 million.
• SMBC Nikko Securities America, Inc., will pay a penalty of $9 million.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of complying with recordkeeping requirements in federal securities laws, underscoring their vital role in safeguarding investor interests and maintaining the integrity of the markets. He stated, “While some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not.”

Sanjay Wadhwa, Deputy Director of Enforcement, reiterated the SEC’s commitment to ensuring that regulated entities, including broker-dealers and investment advisers, uphold their recordkeeping obligations. He pointed out that these requirements are essential for the SEC to effectively oversee and enforce compliance with securities laws. Wadhwa highlighted the broader scope of these enforcement actions, noting that similar violations have been observed among other SEC-regulated entities.

The SEC’s investigation revealed widespread and longstanding instances of “off-channel” communications within all eleven firms. These communications occurred from at least 2019, where employees utilized various messaging platforms on their personal devices (such as iMessage, WhatsApp, and Signal) to discuss their employers’ business matters. However, the firms failed to maintain or preserve the majority of these off-channel communications, thereby contravening federal securities laws. This negligence likely deprived the SEC of access to crucial information during various investigations. The lapses involved employees at various levels, including supervisors and senior executives.

Each broker-dealer firm has been charged with violating specific recordkeeping provisions of the Securities Exchange Act of 1934, as well as failing to reasonably supervise to prevent and detect these breaches. Wedbush Securities Inc., a dually registered broker-dealer and investment adviser, faces additional charges for violating certain recordkeeping provisions of the Investment Advisers Act of 1940, alongside a failure to reasonably supervise to prevent and detect these violations.

In addition to the financial penalties, each firm has been ordered to cease and desist from future violations of the relevant recordkeeping regulations and has been censured. Moreover, these firms have agreed to engage independent compliance consultants who will conduct comprehensive reviews of their policies and procedures related to retaining electronic communications from personal devices. These consultants will also evaluate the firms’ frameworks for addressing employee non-compliance with these policies and procedures.

The Commodity Futures Trading Commission (CFTC) has also announced settlements with Wells Fargo Bank NA, Wells Fargo Securities, LLC, BNP Paribas Securities Corp., BNP Paribas S.A., SG Americas Securities, LLC, Société Générale S.A., Bank of Montreal, and Wedbush Securities Inc. These settlements are tied to related conduct identified in the SEC’s enforcement actions.