SEC Levies $79 Million in Penalties on Brokerage Firms for Recordkeeping Lapses

by Tareq Sikder
  • Investigations found off-channel communications, including personal text messages, at 10 firms.
  • Interactive Brokers faces a $35 million fine.
SEC
SEC
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The Securities and Exchange Commission (SEC) has announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications.

Off-Channel Communications Scandal

The firms, including Interactive Brokers Corp., Robert W. Baird & Co. Inc., William Blair & Company LLC, Nuveen Securities LLC, Fifth Third Securities Inc., and Perella Weinberg Partners LP, have collectively agreed to pay $79 million in penalties.

The SEC's investigations revealed pervasive and longstanding off-channel communications at all 10 firms. Employees at these firms communicated through personal text messages about their business activities, violating recordkeeping provisions of the federal securities laws.

The broker-dealer and investment adviser firms admitted to their employees sending and receiving off-channel communications related to recommendations and advice but failed to maintain or preserve the substantial majority of these communications.

The penalties include a $35 million fine for Interactive Brokers, a $15 million penalty for Robert W. Baird & Co. Inc., a $10 million penalty for William Blair & Company LLC, an $8.5 million penalty for Nuveen Securities LLC, an $8 million penalty for Fifth Third Securities Inc., and a $2.5 million penalty for Perella Weinberg Partners LP.

Gurbir S. Grewal, Director of the SEC's Division of Enforcement, noted: "One of the orders included in today’s announced actions is not like the others. There are real benefits to self-reporting, remediating and cooperating."

Apart from the financial penalties, the firms have agreed to cease and desist from future violations, received censures, and committed to implementing improvements in their compliance policies and procedures. They will also retain independent compliance consultants to conduct comprehensive reviews of their policies and procedures related to the retention of electronic communications on personal devices. Furthermore, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.

SEC Highlights Broker-Dealers Falling Behind in AML Program Revisions

In an earlier report, Finance Magnates noted that the SEC issued a warning to broker-dealers, urging them to enhance their anti-money laundering (AML) policies and procedures, specifically emphasizing due diligence when opening new customer accounts. The regulator highlighted concerns about inadequate resources, including staff allocation, devoted to AML compliance programs by some broker-dealers.

The SEC outlined guidelines for broker-dealers, stressing the necessity of implementing and maintaining a comprehensive AML program aligned with the Bank Secrecy Act and its regulations. Additionally, the regulator noted deficiencies in the timely testing of AML controls and updates to AML programs among certain broker-dealers.

The Securities and Exchange Commission (SEC) has announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications.

Off-Channel Communications Scandal

The firms, including Interactive Brokers Corp., Robert W. Baird & Co. Inc., William Blair & Company LLC, Nuveen Securities LLC, Fifth Third Securities Inc., and Perella Weinberg Partners LP, have collectively agreed to pay $79 million in penalties.

The SEC's investigations revealed pervasive and longstanding off-channel communications at all 10 firms. Employees at these firms communicated through personal text messages about their business activities, violating recordkeeping provisions of the federal securities laws.

The broker-dealer and investment adviser firms admitted to their employees sending and receiving off-channel communications related to recommendations and advice but failed to maintain or preserve the substantial majority of these communications.

The penalties include a $35 million fine for Interactive Brokers, a $15 million penalty for Robert W. Baird & Co. Inc., a $10 million penalty for William Blair & Company LLC, an $8.5 million penalty for Nuveen Securities LLC, an $8 million penalty for Fifth Third Securities Inc., and a $2.5 million penalty for Perella Weinberg Partners LP.

Gurbir S. Grewal, Director of the SEC's Division of Enforcement, noted: "One of the orders included in today’s announced actions is not like the others. There are real benefits to self-reporting, remediating and cooperating."

Apart from the financial penalties, the firms have agreed to cease and desist from future violations, received censures, and committed to implementing improvements in their compliance policies and procedures. They will also retain independent compliance consultants to conduct comprehensive reviews of their policies and procedures related to the retention of electronic communications on personal devices. Furthermore, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.

SEC Highlights Broker-Dealers Falling Behind in AML Program Revisions

In an earlier report, Finance Magnates noted that the SEC issued a warning to broker-dealers, urging them to enhance their anti-money laundering (AML) policies and procedures, specifically emphasizing due diligence when opening new customer accounts. The regulator highlighted concerns about inadequate resources, including staff allocation, devoted to AML compliance programs by some broker-dealers.

The SEC outlined guidelines for broker-dealers, stressing the necessity of implementing and maintaining a comprehensive AML program aligned with the Bank Secrecy Act and its regulations. Additionally, the regulator noted deficiencies in the timely testing of AML controls and updates to AML programs among certain broker-dealers.

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