Atom Investors RIA Escapes Penalty in SEC Off-Channel Recordkeeping Case
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The U.S. Securities and Exchange Commission announced that it has charged Texas-based registered investment adviser Atom Investors LP with violating recordkeeping provisions for its failure to maintain and preserve off-channel communications – including personal text messages – that discussed firm business, investment recommendations, and trade executions.
The SEC did not impose a penalty because, according to the commission, Atom Investors self-reported the conduct, promptly remediated the violations, and provided substantial cooperation to SEC staff in an investigation of another entity.
According to the SEC, from at least May 2018 through October 2021, Atom personnel including senior management sent and received off-channel communications, including personal text messages, to other Atom employees or known contacts at a separate entity, which were related to potential firm business, investment recommendations, and trade executions. These actions were in direct violation of both federal securities laws and the firm’s own internal policies. Atom Investors identified these communications when responding to a subpoena related to another entity. Despite the violations, the SEC did not financially penalize the firm.
“This enforcement matter highlights the risk to investors when firms don’t comply with their recordkeeping obligations…,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. “At the same time, this resolution shows that the full benefits of cooperation are available in recordkeeping matters. Atom Investors’ self-reporting and prompt remedial efforts weighed heavily in the enforcement division’s decision to recommend that the Commission not impose a penalty, which the Commission accepted. This resolution should serve as a model for other investment advisers that are not currently in compliance with federal recordkeeping requirements.”
Atom Investors, without admitting or denying the SEC’s findings, has agreed to cease and desist from further violations and accept a censure. The firm has also implemented remedial measures, including changes to its compliance program and firm-wide training.
This is just the latest example of the SEC’s crackdown on off-channel communications violations. Just earlier this month, the SEC fined 12 adviser firms more than $1.3 million combined to settle charges related to off-channel communications. Independent broker-dealer LPL Financial agreed to a settlement with the SEC of $50 million for allegations related to the recordkeeping of its off-channel communications. Additionally, the SEC fined 16 firms $81 million for similar off-channel violations in February.
Atom Investors LP is a limited partnership organized under the laws of Texas with a principal place of business in Austin, Texas, and had approximately $1.7 billion in regulatory assets under management as of March 2024. In order to implement its fund’s investment strategy, Atom allocates capital to independent external managers utilizing managed accounts that are operated pursuant to sub-advisory agreements and Atom’s investment guidelines.
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