On April 3, 2024, the Securities and Exchange Commission announced charges against a registered investment adviser for recordkeeping failures regarding personal device communications and pre-clearance of securities transactions in employees’ personal accounts. The firm was charged and agreed to pay a $6.5 million dollar penalty and to implement improvements to its compliance policies and procedures. Moreover, the adviser agreed to retain a compliance consultant to conduct reviews of its policies and procedures.
Facts
For almost two years, employees at all levels were found to be communicating about company business using personal texting platforms in violation of the firm’s policies and procedures. These off-channel communications were not preserved in the firm’s records as required by the Investment Advisers Act of 1940 (“Advisers Act”). In a specific instance, a group of employees communicated on a system that was programmed to delete their messages automatically after 30 days. Additionally, the adviser failed to enforce their code of ethics requiring pre-clearance for all securities transactions in employees’ personal accounts. The regulatory basis for the SEC’s charges stems from the firm’s failure to supervise and prevent violations of the recordkeeping rule and certain ethics provisions of the Advisers Act.
