The US Securities and Exchange Commission (SEC) is ramping up its investigation into Wall Street's use of private messaging apps like WhatsApp and Signal. The agency has recently collected thousands of staff messages from more than a dozen major investment companies, marking a significant escalation in its two-year crackdown on potential record-keeping violations.

SEC Investigates Wall Street’s Private Chats

The SEC's probe initially targeted broker-dealers, resulting in over $2 billion in fines. However, the focus has now shifted to investment advisers. The agency has been scrutinizing messages on personal devices from the first half of 2021, targeting a selection of employees, including senior executives. Firms under the microscope, include Carlyle Group, Apollo Global Management, KKR & Co, TPG, and Blackstone.

The SEC's intensified scrutiny exposes companies and their executives to greater risks. "The more information you give the SEC, the more you fuel the beast," commented an anonymous source familiar with the matter quoted by Reuters. Unlike previous broker-dealer investigations, where the SEC reviewed only a sample of messages, the agency is now directly collecting messages from employees' personal devices.

🔸SEC COLLECTS PRIVATE MESSAGES IN ESCALATED WHATSAPP PROBE

— *Walter Bloomberg (@DeItaone) September 25, 2023

Investment firms have pushed back against the SEC's demands, arguing that their record-keeping requirements differ from those of broker-dealers. An industry letter led by the Managed Funds Association labeled the SEC's request as "invasive" and raised concerns about privacy. Despite the resistance, the SEC has insisted that the firms hand over the messages.

Legal Implications of SEC’s Actions

While the SEC's investigation is not evidence of wrongdoing, it does put the spotlight on compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term issues. Jaclyn Grodin, a lawyer not involved in the investigation, noted in a conversation with Reuters that the SEC's extensive data collection could uncover compliance failures unrelated to the original focus of the probe. The SEC is also increasingly concerned about issues like private fund fees, conflicts of interest, and preferential treatment of investors.

Wall Street has long struggled with monitoring staff communications on personal messaging channels. The SEC's focus on this issue intensified when JPMorgan Chase failed to provide documents in a separate probe, leading to a settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term of $125 million over record-keeping lapses.

The agency's ongoing investigation has already netted big names like Wells Fargo, Bank of America, Goldman Sachs, and Morgan Stanley, generating millions in legal fees.

The SEC's investigation is shaping up to be a signature enforcement initiative under the Chair, Gary Gensler.

Today we proposed enhancements to the rule that protects a customer’s cash and securities held at a broker-dealer, increasing from weekly to daily the frequency of the computations of the net cash a broker-dealer owes to customers and other broker-dealers.https://t.co/HECd0F2eeB pic.twitter.com/ZYvY0xBDt9

— U.S. Securities and Exchange Commission (@SECGov) July 12, 2023

The commission remains steadfast in its mission to uphold record-keeping rules as a guard against wrongdoing.