On Feb. 9, 2024, in a significant enforcement action, the Securities and Exchange Commission
(SEC) announced charges against five broker-dealers, seven dually registered broker-dealers
and investment advisers, and four affiliated investment advisers for widespread and
longstanding failures to maintain and preserve electronic communications. These firms have
collectively agreed to pay more than $81 million in civil penalties.
The Violations and Penalties
The SEC’s investigation revealed that employees at these firms were using unapproved
communication methods, known as off-channel communications, to discuss business matters.
These methods included personal text messages, which the firms failed to maintain or preserve
as required by federal securities laws. This lack of compliance deprived the SEC of critical
information necessary for monitoring and enforcement.
The penalties are substantial, as outlined below:
- Northwestern Mutual (NMIS, NMIM, and Mason Street): $16.5 million
- Guggenheim Securities (Guggenheim Securities and GPIM): $15 million
- Oppenheimer & Co. Inc.: $12 million
- Cambridge Investment Research (CIR and CIRA): $10 million
- Key Investment Services (KIS and KBCM): $10 million
- Lincoln Financial (Lincoln Financial Advisors and Lincoln Financial Securities): $8.5 million
- U.S. Bancorp Investments Inc.: $8 million
- Huntington Investment Company (HIC, HSI, and Capstone): $1.25 million
SEC’s Stance on Recordkeeping Compliance
Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of
compliance with recordkeeping requirements, stating, “Today’s actions against these 16 firms
result from our continuing efforts to ensure that all regulated entities comply with the
recordkeeping requirements, which are essential to our ability to monitor and enforce
compliance with the federal securities laws.”
The SEC’s findings showed that from at least 2019 or 2020, employees at these firms engaged in
off-channel communications about business matters, which were not properly maintained or
preserved. This failure involved employees at multiple levels, including supervisors and senior
managers.
The Legal and Financial Consequences
The SEC charged Guggenheim Securities, CIR, Huntington, Key, Lincoln, NMIS, Oppenheimer,
and U.S. Bancorp with violating recordkeeping provisions of the Securities Exchange Act of 1934
and failing to reasonably supervise to prevent these violations. Additionally, CIRA, GPIM, HIC,
KIS, Lincoln, NMIM, and Mason Street were charged under the Investment Advisers Act of 1940
for similar violations.
Each firm has been ordered to cease and desist from future violations of the relevant
recordkeeping provisions, was censured, and agreed to retain independent compliance
consultants. These consultants will conduct comprehensive reviews of the firms’ policies and
procedures relating to the retention of electronic communications found on personal devices
and their frameworks for addressing non-compliance.
The Importance of Compliance
It is crucial to highlight the importance of strict adherence to regulatory requirements. This case
serves as a reminder that compliance is not optional but a fundamental aspect of operating
within the securities industry. The significant financial penalties imposed on these firms
highlight the serious consequences of failing to meet regulatory standards.
Navigating the complexities of securities law requires the guidance of a knowledgeable and
experienced securities fraud lawyers. An investment fraud law firm provides essential legal
support and ensures clients are fully compliant with all regulatory requirements.
No representation is made that the quality of the legal services to be performed is greater than the quality of legal services performed by other lawyers.