SEC Charges 10 Firms with Recordkeeping Failures, Highlights Importance of Off-Channel Communications Compliance

The Securities and Exchange Commission (SEC) has charged 10 firms with widespread and longstanding failures to maintain and preserve electronic communications. The firms admitted to the violations and agreed to pay combined penalties of $79 million.

The SEC's investigation found that the firms' employees communicated through personal text messages and other off-channel platforms about the business of their employers. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws.

In addition to the financial penalties, each of the firms was ordered to cease and desist from future violations and was censured. The firms also agreed to retain independent compliance consultants to conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices.

Investors should be aware of the risks associated with investing with firms that have a history of recordkeeping failures. They should ask questions about the firm's policies and procedures regarding the retention of electronic communications and be wary of firms that do not have a strong culture of compliance.

SEC Rules Broken:

• The firms violated certain recordkeeping provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940.
• The firms failed to reasonably supervise their employees with a view to preventing and detecting these violations.

What the Firms Should Have Done:

• The firms should have implemented and enforced strong policies and procedures regarding the retention of electronic communications found on personal devices.
• The firms should have provided training to their employees on the importance of complying with these policies and procedures.
• The firms should have monitored their employees' communications for compliance with these policies and procedures.

What Investors Should Be on the Lookout For:

• Investors should be aware of the risks associated with investing with firms that have a history of recordkeeping failures.
• Investors should ask questions about the firm's policies and procedures regarding the retention of electronic communications.
• Investors should be wary of firms that do not have a strong culture of compliance.

https://www.sec.gov/news/press-release/2023-212?utm_medium=email&utm_source=govdelivery

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