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Vedder Thinking | Articles SEC Settles Charges against 16 Firms for Alleged Recordkeeping Failures from “Off-Channel Communications”


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On September 27, 2022, the SEC announced the settlement of administrative proceedings brought against 15 broker-dealers and one affiliated investment adviser for alleged violations of the recordkeeping provisions of the Securities Exchange Act of 1934. The proceedings arose out of widespread use of “off-channel communications”— employees’ use of personal devices to communicate business matters by personal text messages or other text messaging platforms, such as WhatsApp—which generally were not maintained or preserved by the firms. The press release announcing the settlements stated that the firms’ failure to maintain and preserve required records likely deprived the SEC of such records for use in various investigations, and that the alleged compliance failures involved employees at multiple levels of authority, including supervisors and senior executives.

The firms agreed to pay combined penalties of more than $1.1 billion and to implement improvements to their compliance policies and procedures to address the violations. Each firm was ordered to cease and desist from future violations of the relevant recordkeeping provisions, and were required to retain compliance consultants to aid the firms in conducting comprehensive reviews of their policies and procedures related to retaining electronic communications on personal devices and dealing with non-compliance by employees.

The Director of the SEC’s Division of Enforcement, Gurbir S. Grewal, noted that other broker dealers and asset managers who are subject to similar recordkeeping requirements “would be well-served to self-report and self-remediate any deficiencies.”

The SEC’s press release is available here.


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Christina V. West