SEC Imposes Over $81 Million in Penalties on 16 Firms for Recordkeeping Failures
The Securities and Exchange Commission (SEC) has taken enforcement action against a total of sixteen firms, including five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers. The charges revolve around widespread and long-standing failures by these firms and their employees to maintain and preserve electronic communications.
All sixteen firms admitted to the facts outlined in their respective SEC orders, acknowledging violations of recordkeeping provisions of the federal securities laws. As part of the settlement, the firms have agreed to pay a combined civil penalty exceeding $81 million. Additionally, they have initiated measures to enhance their compliance policies and procedures to rectify these shortcomings.
The breakdown of the penalties includes:
- Northwestern Mutual Investment Services LLC, Northwestern Mutual Investment Management Co. LLC, and Mason Street Advisors LLC (Northwestern Mutual): $16.5 million penalty
- Guggenheim Securities LLC and Guggenheim Partners Investment Management LLC (Guggenheim): $15 million penalty
- Oppenheimer & Co. Inc. (Oppenheimer): $12 million penalty
- Cambridge Investment Research Inc. and Cambridge Investment Research Advisors Inc. (Cambridge): $10 million penalty
- Key Investment Services LLC and KeyBanc Capital Markets Inc. (Key): $10 million penalty
- Lincoln Financial Advisors Corporation and Lincoln Financial Securities Corporation (Lincoln): $8.5 million penalty
- U.S. Bancorp Investments Inc. (U.S. Bancorp): $8 million penalty
- The Huntington Investment Company, Huntington Securities Inc., and Capstone Capital Markets LLC (Huntington): $1.25 million penalty
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the significance of maintaining proper recordkeeping requirements, calling them essential for the SEC's ability to monitor and enforce compliance with federal securities laws. Grewal noted that Huntington's penalty reflected its voluntary self-report and cooperation.
The SEC's investigations revealed widespread and prolonged use of unapproved communication methods, referred to as off-channel communications, across all sixteen firms. Employees, including supervisors and senior managers, engaged in personal text messages discussing their employers' business, violating recordkeeping provisions.
In response to these findings, each firm has been ordered to cease and desist from future violations of relevant recordkeeping provisions, receive censure, and employ independent compliance consultants. These consultants will conduct thorough reviews of policies and procedures related to the retention of electronic communications on personal devices and frameworks for addressing non-compliance by employees. The financial penalties, along with the remedial actions, mark the SEC's commitment to upholding regulatory standards in the financial industry.
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