Wall Street Firms Charged By SEC With Record-Breaking US$1.1 Billion Penalty For Recordkeeping Failures

The US Securities and Exchange Commission announced on Tuesday that it is charging 15 broker-dealers and one affiliated investment adviser for failing to adhere to record-keeping standards. The firms agreed to pay combined penalties of more than US$1.1 billion–a record for the government.

Each of the following eight Wall Street banks agreed to pay US$125 million each:

  • Barclays Capital Inc.;
  • BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
  • Citigroup Global Markets Inc.;
  • Credit Suisse Securities (USA) LLC;
  • Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
  • Goldman Sachs & Co. LLC;
  • Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
  • UBS Securities LLC together with UBS Financial Services Inc.

Meanwhile Jefferies LLC and Nomura Securities International, Inc. each agreed to pay US$50 million; Cantor Fitzgerald & Co. agreed to pay US$10 million in penalties.

“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” said SEC Chair Gary Gensler.

The penalty amount is similar to the settlement deal between JP Morgan Chase and the SEC in December 2021, when the former was identified to have failed to retain tens of thousands of messages between traders and clients. The bank paid US$200 million in total settlement–US$125 million to the SEC and US$75 million to the Commodity and Futures Trading Commission.

The move is related to the regulators’ investigation into the use of banned private messaging apps like Whatsapp by the banks’ traders.

According to the regulatory bodies’ rules, brokers and banks with brokerage arms are supposed to keep a paper trail of their employees’ communications for regular checking of compliance with investor protection laws. The use of encrypted and private messaging apps makes the conversations prone to being deleted.

Conducting brokerage business over messaging apps–which became more prevalent when remote work started during the pandemic–could also possibly extend the banks’ business to its employees’ personal devices. This potentially increases the risk of being hacked and sensitive data being stolen.

The settlement deals is said to be a record for the government. In 2020, during the former administration’s last year, the median settlement cost was around US$194,000.

Information for this briefing was found via the SEC. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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