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Blackstone, Apollo, KKR, and Schwab Among 12 Firms to Pay $63M Combined for Electronic Recordkeeping Failures

By Mari Nicholson

Blackstone Apollo KKR and Schwab Among 12 Firms to Pay 63M Combined for Electronic Recordkeeping Failures

The U.S. Securities and Exchange Commission announced charges against nine investment advisers and three broker-dealers for failures by the firms and their personnel to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws.

The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $63.1 million, and have begun implementing improvements to their compliance policies and procedures to address these violations.

One of the firms, PJT Partners LP, self-reported its violations and, as a result, will pay significantly lower civil penalties than it would have otherwise.

The firms and their respective penalties are:

  • Blackstone Alternative Credit Advisors LP, together with Blackstone Management Partners LLC, and Blackstone Real Estate Advisors LP, $12 million penalty;
  • Kohlberg Kravis Roberts & Co. LP, $11 million penalty;
  • Charles Schwab & Co., Inc., $10 million penalty;
  • Apollo Capital Management LP, $8.5 million penalty;
  • Carlyle Investment Management LLC, together with Carlyle Global Credit Investment Management LLC, and AlpInvest Partners BV, $8.5 million penalty;
  • TPG Capital Advisors LLC, $8.5 million penalty;
  • Santander US Capital Markets LLC, $4 million penalty; and
  • PJT Partners LP, which self-reported, agreed to pay a $600,000 penalty.

“In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, acting director of the SEC’s enforcement division.

Each of the SEC’s investigations uncovered the use of unapproved communication methods, known as off-channel communications, at these firms. As described in the SEC’s orders, the firms admitted that, during the relevant periods, their personnel sent and received off-channel communications that were records required to be maintained under the securities laws. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.

“In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognized and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation,” added Wadhwa.

The firms were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 or the Securities Exchange Act of 1934. The firms were also each charged with failing to reasonably supervise their personnel with a view to preventing and detecting those violations.

In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.

In similar crackdowns previously reported last summer, the SEC fined six nationally recognized statistical rating organizations, or NRSROs, $49 million combined for significant failures by the firms and their personnel to maintain and preserve electronic communications – primarily in regards to their employees’ use of text messaging and messaging apps.

Also previously reported by The DI Wire, Ameriprise Financial Services LLC, Edward D. Jones & Co., L.P., and LPL Financial LLC were among 26 broker-dealers, investment advisers, and dually registered broker-dealers and investment advisers that the SEC charged with widespread and longstanding electronic and communications recordkeeping failures in August 2024.

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