The SEC Charges 11 Wall Street Firms with Widespread Recordkeeping Failures

The Securities and Exchange Commission charged ten firms as broker-dealers and one as a dually registered broker-dealer and investment adviser today for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts outlined in their SEC orders. They admitted that their actions violated federal securities laws' recordkeeping rules, agreed to pay combined fines of $289 million as described below, and have commenced implementing reforms to its compliance policies and procedures to remedy these violations.

• Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC agreed to pay a $125 million penalty;

• BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million;

• BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million;

• Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty;

• Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million; and

• SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.

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“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,” stated Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

“So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”

“Today’s actions stem from our continuing sweep to ensure that regulated entities, including broker-dealers and investment advisers, comply with their recordkeeping requirements, which are essential for us to monitor and enforce compliance with the federal securities laws. Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors,” commented Sanjay Wadhwa, Deputy Director of Enforcement.

“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements, and are implementing measures to prevent future similar violations. However, we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues.”

The SEC’s inquiry revealed extensive and long-standing “off-channel” communications across all 11 firms. According to the SEC’s statements, these firms acknowledged that as early as 2019, their employees frequently used various messaging platforms on personal devices like iMessage, WhatsApp, and Signal to discuss their employers’ business affairs. These firms failed to retain the majority of these off-channel communications, leading to violations of federal securities laws. This oversight potentially hindered the Commission’s access to these off-channel communications during various SEC investigations. These lapses affected employees at different organizational levels, from supervisors to senior executives.

Each broker-dealer faced charges for infringing specific recordkeeping provisions of the Securities Exchange Act of 1934 and for inadequately supervising to prevent and detect these violations. Additionally, Wedbush Securities Inc., a dual broker-dealer and investment adviser, faced additional charges for breaching specific recordkeeping provisions of the Investment Advisers Act of 1940 and for inadequate supervision to prevent and detect these infringements.

Apart from substantial financial penalties, each firm received orders to cease future violations of relevant recordkeeping provisions and were censured. Additionally, the firms committed to enlisting independent compliance consultants to comprehensively assess their policies and procedures for retaining electronic communications originating from personal devices. These assessments will also address their respective frameworks for addressing employee non-compliance with these policies and procedures.