Wall Street firms settle with SEC over electronic recordkeeping failures

The Securities and Exchange Commission said it has reached a settlement with 16 different Wall Street-based companies over accusations they failed to properly maintain and preserve records of electronic communications.

Specifically, the SEC said these firms all exhibited patterns of routine off-channel communications through methods like text messages on their personal devices. These communications, unlike say a work email, were not maintained or preserved, which is a violation of securities law. The SEC said that, with the firms failing to maintain and preserve records of business matters, the regulator likely did not have access to the full picture in various investigations. This pattern, said the SEC, was found to exist among employees at multiple levels of authority, including supervisors and senior executives.

"Today's actions – both in terms of the firms involved and the size of the penalties ordered – underscore the importance of recordkeeping requirements: they're sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm's books and records to determine what happened," said Gurbir S. Grewal, director of the SEC's Division of Enforcement, in a statement. "These 16 firms not only have admitted the facts and acknowledged that their conduct violated these very important requirements, but have also started to implement measures to prevent future violations. Other broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies."

The incident calls to mind the LIBOR rate rigging scandal in which foreign exchange traders at multiple financial institutions colluded to manipulate currency values. This scandal ultimately saw firms hit with $5.8 billion worth of fines.

The combined penalties for this most recent case totals $1.1 billion. Eight firms (and five affiliates) have agreed to pay penalties of $125 million each:

• Barclays Capital Inc.;
• BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
• Citigroup Global Markets Inc.;
• Credit Suisse Securities (USA) LLC;
• Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
• Goldman Sachs & Co. LLC;
• Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
• UBS Securities LLC together with UBS Financial Services Inc.

Two firms agreed to pay $50 million each: Jefferies LLC and Nomura Securities International, Inc. Meanwhile, Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.

Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations. DWS Investment Management Americas, Inc., the investment advisor, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.

In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing noncompliance by their employees with those policies and procedures.