Wall Street Firms slip up on RecordKeeping requirements — the SEC reacts.


On September 27, 2022, the Securities and Exchange Commission (SEC) announced that charges would be filed against 15 broker-dealers and one connected investment adviser.

The allegations are the result of persistent and pervasive failures on the part of the businesses and their staff to retain and preserve electronic communications.

They have agreed to pay a combined fine of more than $1.1 billion and acknowledged that their actions violated the recordkeeping requirements of the federal securities laws.

They have also confessed the facts that were detailed in their individual SEC rulings.

To resolve these issues, corporations have started implementing changes to their compliance rules and practices.

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Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC with Morgan Stanley Smith Barney LLC, Deutsche Bank Securities Inc. with DWS Distributors Inc. and DWS Investment Management Americas, Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. with DWS Distributors Inc. and DWS Investment Management Americas, Inc., UBS Securities LLC with UBS Financial Services Inc., Barclays Capital Inc., BofA Securities Inc. have agreed to each pay a $125 million fine.

Nomura Securities International, Inc., Jefferies, LLC. & Cantor Fitzgerald & Co. agreed to pay fines totaling $50 million

Recordkeeping and books-and-records obligations has been a crucial component of preserving the market’s integrity since the 1930s.

It is becoming more crucial than ever for registrants to properly conduct their business conversations using only formal channels, and they must also record and preserve those communications.

This is due to the fact that communications tracking is becoming more challenging as a result of technical improvements.

The SECs investigation uncovered a lot of off-channel communication. By gathering communications from a selection of their employees’ personal devices utilized during the probe, the corporations helped the investigation.

These people included traders in debt and equity as well as senior and junior investment bankers.

Between the months of January 2018 and September 2021, employees of the organizations frequently communicated with one another using text messaging applications that were set up on their own personal devices about matters pertaining to their jobs.

The companies failed to maintain or retain a substantial percentage of the off-channel communications in which they engaged, in violation of the federal securities laws.

These off-channel communications were undoubtedly lost to the Commission in a number of investigations the Commission conducted as a result of the acts of the corporations, which included failing to keep and preserve necessary records relating to their activity.

All 16 of the firms were impacted, and people in positions of authority, including senior executives and supervisors, participated in the errors that occurred.

The actions taken by the SEC demonstrate the importance of recordkeeping requirements.

These 16 organizations have not only admitted the truth and accepted that their actions violated these critically important standards, but they have also already started adopting processes to prevent future infractions. Other Broker-Dealers and Asset Managers subject to similar obligations under the federal securities laws would be best served to self-report and self-correct any deficiencies.

The time has come to tighten up your record-keeping procedures and fix any issues that can result in employees of your company committing similar crimes in the future. The SEC is not messing around when it comes to recordkeeping.

Source: https://www.sec.gov/news/press-release/2022-174