The Securities and Exchange Commission (SEC) has imposed penalties totaling $79 million on ten firms for allegations of inadequate recordkeeping. The regulator said the crackdown had exposed a trend of inadequate electronic communication maintenance across broker-dealers and investment advisers.

In a decisive move, the SEC took action against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for failing to maintain and preserve electronic communications properly. These firms have admitted responsibility, acknowledging that their actions violated recordkeeping provisions stipulated by federal securities laws.

Gurbir Grewal, the Director of the SEC's Division of Enforcement, said: "One of the orders included in today's announced actions is not like the others. There are real benefits to self-reporting, remediating and cooperating."

Off-Channel Communication Lapses

The penalties are as follows: Interactive Brokers Corp. and Interactive Brokers LLC (together, Interactive Brokers) face a penalty of $35 million. Robert W. Baird & Co. Inc. was slapped with a penalty of $15 million, while William Blair & Company LLC and William Blair Investment Management LLC (WBIM) agreed to pay $10 million in penalties.

Besides that, Nuveen Securities LLC is facing a penalty worth $8.5 million, while Fifth Third Securities Inc. has been ordered to pay $8 million. Perella Weinberg Partners LP (Perella Weinberg), Tudor, Pickering, Holt & Co. Securities LLC (TPH), and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), who self-reported, were penalized $2.5 million.

The SEC discovered widespread off-channel communications within all ten firms. The broker-dealers confessed that since at least 2019, their employees have been using personal text messages for business-related discussions, while investment advisers admitted to sending and receiving off-channel communications concerning investment recommendations and advice.

SEC Enforces Compliance Measures

In addition to the financial penalties, the SEC ordered each firm to cease and desist from any future violations of relevant recordkeeping provisions. Furthermore, these firms must retain independent compliance consultants to conduct a review of their policies.

In a separate report, Interactive Brokers Corp. and Interactive Brokers LLC are set to pay a $20 million civil monetary penalty following an enforcement action by the Commodity Futures Trading Commission (CFTC). The penalty results from their alleged failure to maintain and preserve crucial records mandated by CFTC recordkeeping requirements, along with a lapse in supervising matters about their roles as CFTC registrants and procedures related to electronic communication retention on personal devices.

"The order also finds the widespread use of unapproved communication methods violated Interactive Brokers' internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods," CFTC said.

From 2019 to the present, the firm failed to prevent its employees, including senior-level staff, from using unapproved communication methods. These included personal text messages and WhatsApp, even for business-related communications.