SEC Charges Securities Firms for Violating Recordkeeping Requirements

The SEC recently ordered a national securities firm to pay a $125 million penalty for violating the recordkeeping requirements of federal securities law.  An SEC investigation found that the employees at all levels of the firm were communicating about business matters on their personal devices by text messages and text messaging applications, and that those communications were not properly maintained or preserved by the firm.

The firm had policies in place to monitor, review, and archive communications through “approved” methods but communications through unapproved methods, such as text messages on personal devices, were not monitored, reviewed, or archived.  The firm also trained employees on the firm’s communications and recordkeeping policies but failed to implement monitoring to assure those policies were being followed, which resulted in the SEC finding that the firm failed to reasonably supervise its employees as required by federal securities law. 

The firm admitted the facts set forth in the order and acknowledged that its conduct violated federal securities law.  In addition to paying the civil money penalty, the firm also agreed to a number of items including retaining a compliance consultant and requiring the compliance consultant to complete an evaluation of the firm’s progress after one year.

Fifteen other firms were issued substantively similar orders, which can be found here. Between the sixteen firms, the SEC will collect a combined total of $1.1 billion in penalties.  In the press release announcing these orders the Director of the SEC’s Division of Enforcement stated that other firms which are subject to similar recordkeeping requirements under federal securities law “would be well-served to self-report and self-remediate any deficiencies.”