SEC charges 12 companies with flawed record-keeping, imposes $88M in fines
Sept. 24, 2024
SEC Chair Gary Gensler, during a congressional hearing Tuesday, came under fire from Republicans asserting that he should use regulation more than enforcement to correct company record-keeping.
Dive Brief:
The Securities and Exchange Commission fined 12 investment advisers, broker-dealers and other financial services companies a total of $88 million for breaking securities laws by failing to preserve employees’ electronic communications.
The firms — including CIBC World Markets, Invesco Distributors and Stiflel, and Nicolaus & Company — admitted the facts of the agency’s orders and have begun improvements to align with regulations, the SEC said Tuesday.
“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,” SEC Enforcement Division Director Gurbir Grewal said in a statement. He applauded firms that “self-report” flaws to the agency, noting they “may receive significantly reduced penalties.”
Dive Insight:
The SEC since August 2023 has publicly upbraided more than 40 financial services companies for botched or non-existent record-keeping and imposed fines as high as $125 million.
SEC Chair Gary Gensler, during a hearing before the House Financial Services Committee on Tuesday, came under fire from Republicans asserting that the agency should correct weak record-keeping in communications more through regulation than through an enforcement crackdown.
“Why didn’t the SEC issue a risk alert during COVID, for instance, when it knew that the whole world was becoming more reliant on using phones for communication during this time of abrupt, forced remote work?” Rep. Ann Wagner (R-Mo.) said.
“Why did the SEC wait and play gotcha after the fact with enforcement actions?” Wagner asked Gensler and the agency’s four other commissioners, including Hester Peirce, one of two Republican appointees.
“I think you point out that a lot of this probably did stem from the fact that COVID changed the world and the way we do things, and that’s why we should have taken a regulatory approach first,” Peirce said in reply to Wagner.
Enforcement of the record-keeping laws “certainly has become a cash cow for the SEC, and so the typical case is not based on fraud or any evidence of a problem other than a record keeping problem,” Peirce said. “That’s a serious problem, but I think we need to address it not through enforcement first, but through regulatory work.”
The SEC said that its investigations “uncovered pervasive and longstanding use of unapproved communications methods, known as off-channel communications,” by executives with the title of supervisor and senior manager as well as those at lower levels.
Companies that reach out to the SEC about botched record-keeping face lighter sanctions and, in some cases, may not be fined at all, Grewal said.
For example, Qatalyst Partners took corrective steps early and, although cited by the SEC, will not pay a penalty, he said.
“Despite recordkeeping failures that involved communications by senior leadership and persisted after our first recordkeeping matters were announced in 2021, Qatalyst took substantial steps to comply, self-reported, and remediated and, therefore, received a no-penalty resolution,” Grewal said.
[CFO Dive]
