The Securities and Exchange Commission (SEC) has taken action against 16 broker-dealers and financial advisers, including major players like Guggenheim and Oppenheimer. These firms face the consequences of failures in maintaining electronic communications, resulting in combined civil penalties exceeding $81 million.
Off-Channel Communication Penalties
The SEC's investigations uncovered a practice of using unapproved communication methods, known as off-channel communications, across all 16 firms, the regulator said in a statement today (Friday).
This included personal text messages discussing business matters and off-channel communications about investment recommendations and advice. These firms allegedly failed to maintain the approved communication channels, violating federal securities laws.
Gurbir Grewal, the Director of the SEC’s Division of Enforcement, mentioned: "Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws."
As a result of these violations, each firm admitted the facts outlined in their respective SEC's orders and agreed to pay substantial civil penalties. Northwestern Mutual faces a penalty worth $16.5 million, Guggenheim $15 million, Oppenheimer $12 million, Cambridge $10 million, Key $10 million, Lincoln $8.5 million, U.S. Bancorp $8 million, and Huntington $1.25 million.
SEC's Regulatory Scrutiny
The SEC charged each firm with violating recordkeeping provisions and failing to prevent and detect these violations. The lapses involved employees at various levels, including supervisors and senior managers. Beyond financial penalties, the firms were censured and ordered to cease future violations.
Additionally, the companies were ordered to retain independent compliance consultants to conduct thorough reviews of their policies and procedures, especially regarding the retention of electronic communications found on personal devices.
Last year, the SEC fined ten financial firms $79 million for alleged lapses in recordkeeping. This crackdown revealed a pattern of inadequate electronic communication practices across broker-dealers and investment advisers.
The SEC's enforcement actions targeted five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers. Alongside the hefty financial penalties, the securities watchdog mandated that each offending firm cease any future violations of recordkeeping provisions.
