US SEC fines 10 firms for recordkeeping failure with a combined penalty of $79 million

The US Securities and Exchange Commission has issued fines for ten different companies operating in the US, charging them a total of $79 million for inadequate recordkeeping.

The regulator noted that the crackdown on the companies revealed inadequate electronic communication between investment advisers and broker-dealers. The regulator then took action against two affiliated investment advisers, three dually registered investment advisers/broker-dealers, and five broker-dealers.

All of them failed to maintain and preserve electronic communications properly, which is something they are obligated to do by law. The companies have admitted responsibility, agreeing with the SEC that their actions had violated the recordkeeping provisions set into place by the US federal securities laws.

The SEC’s Division of Enforcement director, Gurbir Grewal, commented on the crackdown, stating that one of the orders included in the actions stands out from the rest. He added that there are real benefits to self-reporting, remediating, and cooperating.

Which companies were fined, and how much do they have to pay?

The US regulator’s largest fine was $35 million, which went to Interactive Brokers Corp and Interactive Brokers LLC. The second-largest fine was only $15 million, and while this is still quite a sum, it is noticeably smaller than what Interactive Brokers had to pay. This one went to Robert W. Baird & Co. Inc., followed by a $10 million penalty for William Blair & Company LLC and William Blair Investment Management LLC.

The remaining fines include Nuveen Securities LLC ($8.5 million), Fifth Third Securities Inc. ($8 million), and the following companies, each of which received a $2.5 million fine: Perella Weinberg Partners LP; Tudor, Pickering, Holt & Co. Securities LLC; Perella Weinberg Partners Capital Management LP.

The SEC found widespread off-channel communication within all of the mentioned companies, and broker-dealers admitted that their employees used personal text messages for business-related discussions since at least 2019. Similarly, investment advisers admitted that their employees were sending and receiving off-channel communications regarding investment advice and recommendations.

In addition to the penalties, the regulator also ordered the companies to immediately stop these practices, and ensure that their recordkeeping will be conducted in accordance with the standing laws moving forward. They also have to keep independent compliance consultants that would review their policies.

Interactive Brokers must also pay a $20 million fine to CFTC

Interestingly, in addition to the penalty charged by the SEC, Interactive Brokers LLC and Interactive Brokers Corp. must also pay a civil monetary fine of $20 million issued by the CFTC. This fine came from CFTC’s own enforcement action resulting from their failure to preserve crucial records that are a part of the regulator’s requirements.

The CFTC wrote: “The order also finds the widespread use of unapproved communication methods violated Interactive Brokers’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods.”