The US Securities and Exchange Commission (SEC) is showing no sign of slowing down its crackdown on record-keeping failures, coming down on 12 firms over electronic communication recordkeeping failures.
The dozen firms, made up of broker-dealers, investment advisors, and one dually-registered broker-dealer and investment adviser, violated recordkeeping provisions under federal securities laws, and have agreed to pay a total of US$88,225,000. The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act or the Investment Advisers Act or both. One firm was spared a penalty due to its own investigation and cooperation with the SEC.
The firms are: Stifel, Nicolaus & Company ($35m); Invesco Distributors, together with Invesco Advisers ($35m); CIBC World Markets, together with CIBC Private Wealth Advisors ($12m); Glazer Capital ($2m); Intesa Sanpaolo IMI Securities ($1.5m); Canaccord Genuity ($1.25m); Regions Securities ($750,000); Alpaca Securities ($400,000); Focused Wealth Management ($325,000); and Qatalyst Partners (no penalty). The SEC’s investigations into all the firms except for Qatalyst uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.
In April, Senvest Management, a privately owned hedge fund sponsor which invests in US public equity markets, was hit with a US$6.5 million penalty for its use of off-channel communications. In August, more than two dozen firms were hit with fines by the SEC and the Commodity Futures Trading Commission (CFTC) over recordkeeping and communications violations.
Gurbir Grewal, director of the SEC’s division of enforcement, said: “Widespread and longstanding failures, including where those failures potentially hinder the Commission’s investor protection function by compromising a firm’s response to SEC subpoenas, may result in robust civil penalties.
“On the other hand, firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties. Here, despite recordkeeping failures that involved communications by senior leadership and persisted after our first recordkeeping matters were announced in 2021, Qatalyst took substantial steps to comply, self-reported, and remediated and, therefore, received a no-penalty resolution.”
Qatalyst will not pay a penalty because it self-reported its recordkeeping violations, cooperated with the staff’s investigation, and demonstrated substantial efforts at compliance with the recordkeeping requirements. Two additional firms, Canaccord and Regions, also self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise.
Separately, the Commodity Futures Trading Commission announced a settlement with Canadian Imperial Bank of Commerce for related conduct.
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