The US Securities and Exchange Commission (SEC) charged 11 broker-dealers and investment advisory firms, including well-known institutions like Wells Fargo Securities and BNP Paribas Securities, for failure to maintain and preserve electronic communications by the firms and their employees.
The firms have acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay combined penalties of $289 million. They have begun implementing improvements to their compliance policies and procedures to address these violations.
The SEC’s investigation uncovered longstanding ‘off-channel’ communications at all 11 firms, who admitted that from at least 2019, their employees often communicated through various messaging platforms on their personal devices, including iMessage, WhatsApp, and Signal, about the business of their employers.
And in violation of the federal securities laws, these firms did not maintain or preserve the substantial majority of these off-channel communications. The failures involved employees at multiple levels of authority, including supervisors and senior executives. Each of the broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934.
In addition to the significant financial penalties (a total of $549 million), each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions.
Wells Fargo Securities, together with Wells Fargo Clearing Services and Wells Fargo Advisors Financial Network, agreed to pay a $125 million penalty, while BNP Paribas Securities and SG Americas Securities have each agreed to pay penalties of $35 million each. BMO Capital Markets and Mizuho Securities USA will pay $25 million each.
Gurbir S Grewal, Director of the SEC’s Division of Enforcement, said: “Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets. To date, the Commission has brought 30 enforcement actions and ordered over $1.5 billion in penalties to drive this foundational message home.
“And while some broker-dealers and investment advisers have heeded this message, self-reported violations, or improved internal policies and procedures, today’s actions remind us that many still have not. So here are three takeaways for those firms who haven’t yet done so – self-report, cooperate and remediate. If you adopt that, you’ll have a better outcome than if you wait for us to come calling.”
The total penalties were to the tune of $549 million. Wells Fargo, BNP Paribas, SocGen, the Bank of Montreal, Wedbush Securities, Moelis & Company, and Houlihan Lokey, and Japanese brokers Mizuho and SMBC Nikko Securities have agreed to pay a combined $289 million to the SEC.
Wells Fargo, BNP Paribas, SocGen, BMO, and Wedbush will pay a further $260 million to the Commodity Futures Trading Commission (CFTC) for similar violations, the regulator said in a separate statement.
Since late 2021, the SEC and CFTC have been probing broker-dealers over the record-keeping failures. JPMorgan Chase, Barclays, Bank of America and others have shelled out more than $2 billion in related fines.
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