SEC Charges Wells, BNP, Others With Electronic Communications Misuse

The Securities and Exchange Commission on Tuesday announced charges against 11 Wall Street firms for failing to maintain and preserve electronic communications as employees used platforms such as iMessage, WhatsApp and Signal for business matters.

According to the SEC, 10 broker/dealers and one dually registered broker/dealer and investment adviser admitted to recordkeeping failures involving electronic communication and agreed to pay penalties of a combined $289 million. The firms have also begun improvements to their policies and procedures to address the violations, according to the SEC.

“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets,” Gurbir S. Grewal, director of the SEC’s division of enforcement, said in a statement.

The charges add to prior enforcement actions related to recordkeeping failures, which the SEC noted have added up to $1.5 billion in penalties over 30 cases.

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

The SEC found “pervasive and longstanding” use of off-channel communications for business at the 11 companies, according to the announcement. From at least 2019, the regulator found that employees were doing business on channels such as iMessage, WhatsApp and Signal without the firms maintaining or monitoring the channels, a violation of recordkeeping rules under the Securities Exchange Act of 1934.

“The failures involved employees at multiple levels of authority, including supervisors and senior executives,” the SEC wrote in the charges.

The fines included:

• Wells Fargo Securities LLC, together with Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC, agreed to pay $125 million;
• BNP Paribas Securities Corp. and SG Americas Securities LLC each agreed to pay $35 million;
• BMO Capital Markets Corp. and Mizuho Securities USA LLC each agreed to pay $25 million;
• Houlihan Lokey Capital Inc. agreed to pay $15 million;
• Moelis & Co. LLC and Wedbush Securities Inc. each agreed to pay $10 million; and
• SMBC Nikko Securities America Inc. agreed to pay $9 million.

In addition to the fines, the firms were ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured, according to the regulator.

The regulator also cautioned that more enforcement actions would be coming in the future.

“We know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues,” Sanjay Wadhwa, the SEC’s deputy director of enforcement, said in a statement.