SEC Charges 10 Firms with Widespread Recordkeeping Failures
The Securities and Exchange Commission today announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders and acknowledged that their conduct violated recordkeeping provisions of the federal securities laws. The firms agreed to pay combined penalties of $79 million as outlined below and have begun implementing improvements to their compliance policies and procedures to address these violations.
- Interactive Brokers Corp. and affiliate Interactive Brokers LLC (together, Interactive Brokers) agreed to pay a $35 million penalty;
- Robert W. Baird & Co. Inc. agreed to pay a $15 million penalty;
- William Blair & Company LLC and affiliate William Blair Investment Management LLC (WBIM) agreed to pay a $10 million penalty;
- Nuveen Securities LLC agreed to pay an $8.5 million penalty;
- Fifth Third Securities Inc. agreed to pay an $8 million penalty; and
- Perella Weinberg Partners LP (Perella Weinberg), together with Tudor, Pickering, Holt & Co. Securities LLC (TPH) and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), which self-reported, agreed to pay a $2.5 million penalty.
“One of the orders included in today’s announced actions is not like the others,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “There are real benefits to self-reporting, remediating and cooperating.”
The SEC’s investigations uncovered pervasive and longstanding off-channel communications at all 10 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019, their employees communicated through personal text messages about the business of their employers, and the investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, certain of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior managers.
Interactive Brokers, Baird, William Blair, Nuveen, Fifth Third, Perella Weinberg, and TPH were each charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations. Baird, William Blair, WBIM, Fifth Third, and Perella Weinberg Capital were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
Separately, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.
The SEC’s investigations into Interactive Brokers, Perella Weinberg, TPH, and Perella Weinberg Capital were conducted by Laurel S. Fensterstock, Karolina Klyuchnikova, Austin Thompson, and Alison R. Levine and supervised by Thomas P. Smith Jr. of the New York Regional Office. The SEC’s investigations into Baird, William Blair, WBIM, Nuveen, and Fifth Third were conducted by Som P. Dalal, Ruta G. Dudenas, Amy S. Cotter, and Anne C. McKinley and supervised by Paul A. Montoya and Kathryn A. Pyszka of the Chicago Regional Office.