Who may be interested: Registered Investment Advisers, Registered Investment Companies, Compliance Staff
Quick Take: The SEC recently announced a number of additional enforcement actions relating to recordkeeping failures. The SEC orders and related penalties continue to show the importance of self-reporting.
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I. SEC Settles Charges with Twelve Municipal Advisers for Recordkeeping Violations
The SEC recently announced settled charges against twelve municipal advisers for failures by the firms and their personnel to maintain and preserve certain electronic communications.
The SEC Orders found that employees at the firms, including senior employees with high levels of authority, were routinely communicating through various off-channel messaging applications to discuss business matters of the firms. Records of these communications often were not maintained or preserved by the firms, which, the Orders noted, likely deprived the SEC of relevant communications in various SEC investigations.
The firms were each charged with supervision failures and with violating certain recordkeeping provisions of the Securities Exchange Act and the rules of the Municipal Securities Rulemaking Board. As part of the settlements, the firms each acknowledged that their conduct violated recordkeeping provisions of the federal securities laws. The firms have begun implementing improvements to their compliance policies and procedures.
The firms agreed to pay in the aggregate more than $1.3 million in civil penalties. Individual firm’s penalties ranged from $40,000 to $324,000. In addition, each of the firms was censured and ordered to cease and desist from future violations of the relevant recordkeeping provisions.
The SEC’s press release announcing the charges can be found here.
II. SEC Settles Charges with Eleven Firms to Pay over $88 Million for Recordkeeping Failure
The SEC recently announced that it settled charges against twelve firms, comprising of broker-dealers, investment advisers, and one dually registered broker-dealer and investment adviser for failure to maintain and preserve the electronic communications of their employees. The firms were required to admit to the facts set forth in their respective orders, cease and desist from future violations of the relevant recordkeeping provisions and were censured. Eleven of the firms were required to pay combined civil penalties totaling over $88 million. Ten of the firms agreed to retain compliance consultants to review their policies and procedures. Individual firms were required to pay up to $35 million in civil penalties.
The SEC’s orders note that, employees of the eleven firms required to pay penalties, including supervisors and senior executives, routinely discussed unapproved business matters both internally and externally through various off-channel methods, including text messaging applications on their personal electronic devices. The firms regularly failed to maintain and preserve records of these communications in violation of their recordkeeping obligations under Section 17(a) of the Exchange Act and Section 204 of the Advisers Act. One firm failed to adopt and implement policies and procedures reasonably designed to prevent the firm and its supervised persons from violating recordkeeping requirements.
One firm did not pay a civil penalty due to self-reporting of its recordkeeping violations following an internal investigation, cooperation with the SEC staff and its demonstration of substantial efforts at compliance with the recordkeeping requirements. Two of the firms that were required to pay penalties will pay significantly lower civil penalties due to their self-reporting.
The SEC’s press release announcing the settlements can be found here.
III. SEC Charges Adviser with Recordkeeping Violations; Avoids Civil Penalty due to Self-Reporting, Cooperation and Remediation
The SEC announced charges against an adviser for the alleged failure to maintain and preserve off-channel communications in violation of the recordkeeping provisions under the federal securities laws. The SEC did not impose a penalty because the adviser self-reported the conduct, promptly remediated the violations, and provided substantial cooperation to the SEC staff in the investigation of a different entity. Without admitting or denying the SEC’s findings, the adviser agreed to cease and desist from further violations and to a censure.
The SEC’s order can be found here.
