Tuesday proved to be exceptionally unlucky for the Los Angeles-based registered futures commission merchant, Wedbush Securities Inc., which faced challenges from two regulatory fronts. First, the Commodity Futures Trading Commission (CFTC ) imposed a penalty of $6 million, followed by a $10 million fine from the Securities and Exchange Commission (SEC). This comes in response to the company's consistent failures to maintain essential records and a lack of proper oversight in business dealings as a CFTC registrant.

Wedbush Fined for Widespread Use of Unapproved Communication

From 2018 onwards, senior-level employees at Wedbush have used unauthorized communication channels, including personal text messages, to discuss matters pertinent to the company's role as a CFTC registrant. This method of communication goes against the grain of what is stipulated under the CFTC's strict recordkeeping mandates.

The investigation revealed that Wedbush failed to keep or archive thousands of these communications, some of which were related directly to its commodities business. If asked by a CFTC representative, Wedbush would have been hard-pressed to present these communications promptly.

Due to the company's unapproved communications and failure to maintain necessary records, Wedbush fell short in supervising its operations aligned with its responsibilities as a CFTC registrant. This lapse contravenes the CFTC's recordkeeping and supervision guidelines.

"As this action demonstrates, all CFTC registrants must comply with their fundamental recordkeeping obligations," Ian McGinley, the Director of Enforcement at the CFTC, commented. "The CFTC's recordkeeping and supervision requirements are central to its oversight of the U.S. derivatives markets and registrants. The CFTC will continue to pursue all registrants who fail to comply with these core obligations."

In a parallel development, the Securities and Exchange Commission (SEC) has announced that it has raised charges against Wedbush, imposing additional penalties for similar recordkeeping and supervision infringements. The company has agreed to pay a fine of $10 million.

SEC Fines 11 Wall Street Firms

The penalty imposed by the watchdog on Wedbush was part of a broader regulatory action undertaken by the SEC, which levied fines on a total of 11 Wall Street firms due to recordkeeping failures. The cumulative amount of the fines reached $289 million, with the largest penalty being paid by Wells Fargo Securities and its affiliated companies, amounting to $125 million.

"Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets," Gurbir S. Grewal, the Director of the Enforcement Division of the SEC, commented. "To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home."

In a separate announcement, the SEC stated its readiness to implement regulations that mandate broker-dealers and investment advisers to address potential conflicts of interest stemming from their utilization of predictive data analytics and comparable technologies.