SEC Levies Over $88 Million in Combined Fines to 11 Firms for Recordkeeping Failures

The U.S. Securities and Exchange Commission announced that it has charged 12 firms comprising broker-dealers, investment advisers, and one dually-registered broker-dealer and investment adviser for “widespread and longstanding failures” to maintain and preserve electronic communications. The charges stem from the firms’ inability to retain business-related messages sent on personal devices, a practice the SEC refers to as “off-channel communications.”

Eleven of the financial firms were fined for a combined total of more than $88 million. Penalties ranged from $325,000 to $35 million. One firm, Qatalyst Partners LP, received a “no-penalty resolution” due to its proactive approach. According to the SEC, Qatalyst self-reported its violations, cooperated with the SEC’s investigation, and demonstrated substantial efforts to improve its compliance practices.

The firms charged included:

• Stifel, Nicolaus & Company Inc., which agreed to pay a $35 million penalty;
• Invesco Distributors Inc., together with Invesco Advisers Inc., which agreed to pay a $35 million penalty;
• CIBC World Markets Corp., together with CIBC Private Wealth Advisors Inc., which agreed to pay a $12 million penalty;
• Glazer Capital LLC, which agreed to pay a $2 million penalty;
• Intesa Sanpaolo IMI Securities Corp., which agreed to pay a $1.5 million penalty;
• Canaccord Genuity LLC, which agreed to pay a $1.25 million penalty;
• Regions Securities LLC, which agreed to pay a $750,000 penalty;
• Alpaca Securities LLC, which agreed to pay a $400,000 penalty;
• Focused Wealth Management Inc., which agreed to pay a $325,000 penalty; and
• Qatalyst Partners LP, which was not issued a penalty.

The SEC’s investigation revealed that employees at these firms, including senior management, frequently used platforms such as personal text messages and the messaging app WhatsApp for business communications. Some of the firms had been participating in these activities since at least 2018. The SEC stated that, under federal recordkeeping laws, these messages should have been archived and preserved, as they “are an integral part of the investor protection function of the commission, and other securities regulators, in that the preserved records are the primary means of monitoring compliance with applicable securities laws, including antifraud provisions and financial responsibility standards.”

“Today’s enforcement actions reflect the range of remedies that parties may face for violating the recordkeeping requirements of the federal securities laws. 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,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

“On the other hand, firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties,” added Grewal.

In addition to financial penalties, the firms have agreed to cease and desist from future violations, retain independent compliance consultants to review their policies and procedures, and implement improved communication archiving technologies. These measures aim to prevent future recordkeeping lapses and ensure compliance with federal regulations.

For Stifel, Nicolaus & Company, this SEC penalty follows closely on a recent Financial Regulatory Authority allegation. In March, FINRA fined the firm for alleged misconduct related to early rollovers of unit investment trusts.

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