A collection of brokerage firms and investment advisers are paying a combined US$81 million and beefing up their compliance to resolve allegations that they violated industry recordkeeping requirements when their employees used unapproved communications methods, such as private texting, to conduct business.
The U.S. Securities and Exchange Commission (SEC) settled with 16 firms, including various affiliated brokerage and advisory firms, after the regulator’s investigations found “pervasive and longstanding uses of unapproved communication methods” at all of them.
According to the SEC’s orders, the brokerage firms admitted their employees communicated about work through personal text messages. The advisory firms admitted that their employees communicated investment recommendations and advice over text, and that the firms didn’t maintain records of these communications.
“By failing to maintain and preserve required records, some of the firms likely deprived the SEC of these off-channel communications in various SEC investigations,” the regulator said in a release, adding that the failures involved employees at multiple levels, including supervisors and senior managers.
The firms admitted the misconduct and have begun taking action to enhance their compliance with the record keeping rules. They are also paying financial penalties.
The sanctioned firms include affiliates of Northwestern Mutual Investment Services LLC (US$16.5 million), Guggenheim Securities LLC firms (US$15 million), Oppenheimer & Co. Inc. (US$12 million), Cambridge Investment Research Inc. (US$10 million), Key Investment Services LLC (US$10 million), Lincoln Financial Advisors Corp. (US$8.5 million) and U.S. Bancorp Investments Inc. (US$8 million).
A trio of affiliated firms that self-reported the violations — the Huntington Investment Co., Huntington Securities Inc. and Capstone Capital Markets LLC — agreed to pay a US$1.25-million penalty.
“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” said Gurbir Grewal, director of the SEC’s enforcement division, in a release.
“Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation,” he said.