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SEC Collects $1.1 Billion From Major Bank Affiliated Broker Dealers

by on Compliance. Published October 25th, 2022

For Use of WhatsApp and other Record-Keeping Violations

On September 27, 2022, the Securities and Exchange Commission announced charges and settlements against major bank-affiliated broker-dealers collecting nearly $1.1 billion in fines. As described in the SEC press release, eight firms and five affiliates agreed to pay penalties of $125 million each. 

Firms Fined by SEC

  • Barclays Capital Inc.
  • BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.
  • Citigroup Global Markets Inc.
  • Credit Suisse Securities (USA) LLC
  • Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.
  • Goldman Sachs & Co. LLC
  • Morgan Stanley & Co. LLC, together with Morgan Stanley Smith Barney LLC
  • UBS Securities LLC, together with UBS Financial Services Inc.

Two other firms agreed to pay penalties of $50 million each, and one other firm agreed to pay a $10 million penalty.

SEC Violations Explained

The legal issue involved what SEC described as “widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.” SEC charged the firms with using ephemeral messaging and private devices to conduct business operations in violation of SEC regulations. As described in the Settlement Orders, employees at all levels, including management, engaged in “off-channel communications” by using personal devices, and “employees communicated both internally and externally by personal text messages or other text messaging platforms such as WhatsApp” to avoid record-keeping responsibilities—despite internal policies that prohibited the practices.

WhatsApp and Banking Related Communications

WhatsApp is known for its “disappearing messages” feature. App users can enable disappearing messages and set messages to disappear after 24 hours, seven days, or 90 days. See here for WhatsApp FAQ. Disappearing messages present obstacles for law enforcement officials and regulators involved in investigating criminal behavior and regulatory violations—which became the motivating factor for SEC’s investigation. In the Barclays Settlement Order, SEC wrote:

During the time period that Respondent failed to maintain and preserve off-channel communications its employees sent and received related to the broker-dealer’s business, Barclays received and responded to Commission subpoenas for documents and records requests in numerous Commission investigations. As a result, Barclays’ recordkeeping failures likely impacted the Commission’s ability to carry out its regulatory functions and investigate violations of the federal securities laws across these investigations.

The firms admitted willful violation of SEC’s record-keeping regulations, agreed to remediation efforts, and agreed to retain compliance consultants to review and assess remediation efforts.

On the same day, the Commodity Futures Trading Commission announced simultaneous charges and settlements against the same firms for additional civil penalties ranging from $6 million to $100 million.

These are just the most recent charges made by regulators related to ephemeral messaging and other record-keeping violations. Banks and financial institutions should recognize the enforcement actions and take steps to confirm compliance with SEC regulations and internal document retention policies.

Contact Johnston Clem Gifford

For more information, contact us online or by calling (214) 974-8000. Our lawyers routinely advise clients on regulatory compliance and other supervisory and governmental matters.

Photo by Alexander Shatov on Unsplash