Over $81 Million in Fines for Recordkeeping Failures: A Sweeping SEC Enforcement Action!

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The U.S. Securities and Exchange Commission (SEC) has levied fines exceeding $81 million against a group of 16 financial firms for substantial recordkeeping lapses. These firms, encompassing five broker-dealers, seven entities dual-registered as broker-dealers and investment advisers, along with four affiliated investment advisers, have admitted to failing to maintain and preserve electronic communications as mandated by federal securities laws.

This sweeping action underscores a concerted effort by the SEC to clamp down on compliance failures that undermine the regulatory framework’s integrity. Gurbir S. Grewal, the Director of the SEC’s Division of Enforcement, emphasized the critical nature of recordkeeping standards for effective monitoring and enforcement of securities laws. Highlighting the case of The Huntington Investment Company, which self-reported and cooperated with the SEC, which resulted in a significantly reduced penalty of $1.25 million, Grewal pointed to the importance of self-reporting and cooperation with regulatory inquiries.

The fines imposed on the entities are as follows:

These penalties come in the wake of the SEC’s discovery of widespread use of unauthorized communication methods by employees across these firms, dating back to at least 2019 or 2020. The use of personal text messages and other off-channel communications for business-related discussions without maintaining proper records contravenes federal securities laws. Such practices, involving employees at various levels of authority, potentially compromised numerous SEC investigations by withholding critical information.

In response to these violations, the SEC has not only imposed financial penalties but also mandated cease-and-desist orders against future violations. The firms are required to engage independent compliance consultants to review and enhance their policies and procedures on retaining electronic communications and to ensure adherence by their employees.

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