SEC Charges 12 Financial Firms for Recordkeeping Failures

The Securities and Exchange Commission announced charges on Tuesday against 12 financial firms for failing to properly maintain and preserve electronic communications, violating federal securities recordkeeping laws. The firms acknowledged their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties totaling $88.2 million, according to the SEC.

The SEC’s investigation uncovered widespread and longstanding noncompliance, involving the use of unapproved communication methods that prevented regulators from accessing essential records. The charged firms include broker/dealers, investment advisers and one dually registered broker/dealer and investment adviser.

The penalties varied for each firm, with Stifel, Nicolaus & Co. Inc., Invesco Distributors Inc. and Invesco Advisers Inc. paying the highest fines of $35 million each. Other firms agreeing to penalties included:

• CIBC World Markets Corp. and CIBC Private Wealth Advisors Inc.: $12 million;
• Glazer Capital LLC: $2 million;
• Intesa Sanpaolo IMI Securities Corp.: $1.5 million;
• Canaccord Genuity LLC: $1.25 million;
• Regions Securities LLC: $750,000;
• Alpaca Securities LLC: $400,000; and
• Focused Wealth Management Inc.: $325,000.

The SEC’s investigation revealed that personnel at multiple levels of these firms, including senior leadership, used unauthorized communication channels (often referred to as “off-channel communications”) which were not preserved as required by law. These communications, which should have been maintained under federal securities laws, were missing from the records, hindering the SEC’s ability to access them during investigations.

According to the SEC’s statement, a 12th firm, Qatalyst Partners LP, will not pay any penalties due to its proactive approach in addressing the violations. Two other firms, Canaccord and Regions, also self-reported their violations, which led to reduced fines.

“Firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties,” Gurbir Grewal, director of the SEC’s Division of Enforcement, said in a statement. “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.”

The SEC’s order further revealed that 11 of the firms not only violated recordkeeping laws, but also failed to properly supervise their personnel to prevent these violations. Focused Wealth Management was found to lack appropriate policies and procedures designed to ensure compliance with recordkeeping requirements.

As part of the resolution, all firms were censured and ordered to follow the relevant recordkeeping provisions. Ten of the firms will also hire compliance consultants to review their policies and procedures regarding electronic communications and to address any noncompliance among personnel.

In a related development, the Commodity Futures Trading Commission reached a settlement with the Canadian Imperial Bank of Commerce for similar recordkeeping failures.

The SEC’s investigations were led by teams across multiple regional offices, including the New York, Fort Worth and Chicago divisions.