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16 Firms to Pay $2B Over Text Message Violations

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The Securities and Exchange Commission announced charges and $1.1 billion of fines affecting 15 broker-dealers and one affiliated investment advisor on Tuesday, while the Commodity Futures Trading Commission imposed $710 million in penalties on 11 financial institutions over employees routinely communicating about business matters using text messaging applications such as WhatsApp on their personal devices.

Combined with JPMorgan’s $200 million regulatory fine, which regulators announced in December, the total level of penalties over these record-keeping lapses stands at $2.01 billion.

According to the SEC, the financial firms it imposed fines on did not maintain or preserve the substantial majority of these off-channel communications. The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws and agreed to pay combined penalties of $1.1 billion.

The following eight firms (and five affiliates) will pay $125 million each:

Two firms agreed to pay penalties of $50 million each:

Cantor Fitzgerald & Co. agreed to pay a $10 million penalty.

From January 2018 through September 2021, the firms’ employees “routinely communicated about business matters using text messaging applications on their personal devices,” the SEC said.

“The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records relating to their businesses, the firms’ actions likely deprived the Commission of these off-channel communications in various Commission investigations,” it explained.

The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives, according to the agency.

Bloomberg chart of Sept. 27, 2022, showing Historic Fines | Regulators slap banks with $2.01 billion in penalties to settle probe

The fines have been anticipated for months. Morgan Stanley and UBS were among firms who disclosed this summer that they were expecting fines for unauthorized messaging.

“Finance, ultimately, depends on trust,” said SEC Chairman Gary Gensler, in a statement. “By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust.”

As technology changes, Gensler continued, “it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”

Gurbir Grewal, director of the SEC’s Division of Enforcement, added that the 16 firms “not only have admitted the facts and acknowledged that their conduct violated these very important requirements, but have also started to implement measures to prevent future violations. Other broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies.”

Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations.

DWS Investment Management Americas, Inc., the investment advisor, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations, the SEC said.

Separately, the Commodity Futures Trading Commission announced settlements Tuesday with the following firms for related record-keeping misconduct:

  • Bank of America, $100 million
  • Barclays, $75 million
  • Cantor Fitzgerald, $6 million
  • Citi, $75 million
  • Credit Suisse, $75 million
  • Deutsche Bank, $75 million
  • Goldman Sachs, $75 million
  • Jefferies, $30 million
  • Morgan Stanley, $75 million
  • Nomura, $50 million
  • UBS, $75 million

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