The U.S. Securities and Exchange Commission (SEC) has charged 12 firms for failing to retain employees' electronic conversations, the latest repercussions of the so-called WhatsApp investigations. These violations are related to the companies’ failure to properly maintain records of business-related communications, as required by federal securities laws.

Brief Details on Record-Keeping Violations

As indicated in SEC investigations, the companies were found using unauthorized communication methods, referred to as off-channel communications, including messages sent via personal text. 

The SEC’s orders stated that the firms admitted to the allegations and confessed that their personnel, even top management, partake in the off-channel communications during the relevant periods.

These communications, which should have been recorded under securities laws, were not properly maintained. The failure hindered the SEC’s ability to access important records during investigations, reflecting lapses in compliance at multiple levels within the firms.

Companies Fined by SEC

The companies admitted the allegations contained in their respective SEC orders and accepted that their actions breached the recordkeeping provisions of federal securities laws. The companies also consented to pay civil penalties of more than $88 million as specified and have started improving their compliance policies and practices in relation to the violation.

Canadian Imperial Bank of Commerce ("CIBC") (CM Quick QuoteCM - Free Report) and its subsidiaries — CIBC World Markets Corp. and CIBC Private Wealth Advisors, Inc. — paid a combined fine of $42 million. CM’s fine included a $30 million penalty from the CFTC. 

Stifel Financial Corp. (SF Quick QuoteSF - Free Report) and its affiliate, Nicolaus & Company, along with Invesco Ltd.’s (IVZ Quick QuoteIVZ - Free Report) arms, Invesco Distributors, Inc. and Invesco Advisers, Inc., are also among the largely fined companies. SF and its affiliate agreed to pay a fine of $35 million. Invesco’s affiliates also agreed to pay a penalty of the same amount. 

In addition to the larger penalties, several other firms were fined for their recordkeeping violations. Glazer Capital LLC agreed to pay a $2 million penalty, while Intesa Sanpaolo IMI Securities Corp. consented to pay $1.5 million. Canaccord Genuity LLC settled to pay a $1.25 million penalty and Regions Securities LLC agreed to pay $750,000. 

Alpaca Securities LLC and Focused Wealth Management, Inc. consented to pay smaller fines of $400,000 and $325,000, respectively.

Consequences of the Violations for the Firms

The firms were charged with violating specific recordkeeping provisions of the Securities Exchange Act or the Investment Advisers Act, or both.

As a result, each firm was ordered to cease and desist from future violations and received formal censure. Out of the 12 companies, 10 agreed to comply with the compliance consultants to undertake extensive reviews of their policy related to retaining electronic communications on personal devices, as well as make improvements in the general framework for handling cases of non-compliance with employees.

Gurbir Grewal, director of the SEC’s enforcement division, said, “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.”