SEC Orders More Than Sixteen Firms, Including Registered Broker-Dealers and Investment Advisers, to Pay Over $81 Million Combined in Settlement for Extensive Recordkeeping Failures

The SEC's investigations have uncovered a widespread and long-standing practice of using unapproved communication methods, known as off-channel communications, at all 16 firms

The Securities and Exchange Commission made a significant announcement today, revealing charges against multiple broker-dealers, investment advisers, and affiliated firms.

These entities have been found guilty of widespread and long-standing failures to maintain and preserve electronic communications, a violation of recordkeeping provisions in the federal securities laws. As a result, they have agreed to pay substantial civil penalties totaling over $81 million.

However, it's not just about the penalties; these firms have also committed to making improvements to their compliance policies and procedures to rectify these violations. Let's take a closer look at the penalties imposed on each firm:

1. Northwestern Mutual Investment Services LLC (NMIS), Northwestern Mutual Investment Management Co. LLC (NMIM), and Mason Street Advisors LLC (Mason Street) collectively known as Northwestern Mutual, have agreed to pay a penalty of $16.5 million.

2. Guggenheim Securities LLC (Guggenheim Securities) and Guggenheim Partners Investment Management LLC (GPIM) collectively known as Guggenheim, have agreed to pay a penalty of $15 million.

3. Oppenheimer & Co. Inc. (Oppenheimer) has agreed to pay a penalty of $12 million.

4. Cambridge Investment Research Inc. (CIR) and Cambridge Investment Research Advisors Inc. (CIRA) collectively known as Cambridge, have agreed to pay a penalty of $10 million.

5. Key Investment Services LLC (KIS) and KeyBanc Capital Markets Inc. (KBCM) collectively known as Key, have agreed to pay a penalty of $10 million.

6. Lincoln Financial Advisors Corporation and Lincoln Financial Securities Corporation collectively known as Lincoln, have agreed to pay a penalty of $8.5 million.

7. U.S. Bancorp Investments Inc. (U.S. Bancorp) has agreed to pay a penalty of $8 million.

8. The Huntington Investment Company (HIC), Huntington Securities Inc. (HSI), and Capstone Capital Markets LLC collectively known as Huntington, have self-reported and agreed to pay a penalty of $1.25 million.

“Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation.”

The SEC's investigations have uncovered a widespread and long-standing practice of using unapproved communication methods, known as off-channel communications, at all 16 firms. According to the SEC's orders, the broker-dealer firms have admitted that their employees have been using personal text messages to discuss their employers' business since at least 2019 or 2020. Similarly, the investment adviser firms have admitted that their employees have been engaging in off-channel communications regarding recommendations and advice.

Shockingly, these firms have failed to maintain or preserve the majority of these off-channel communications, which is a clear violation of federal securities laws. This failure has potentially deprived the SEC of crucial evidence in various investigations. What's even more concerning is that these failures involve employees at all levels of authority, including supervisors and senior managers.

Guggenheim Securities, CIR, Huntington, Key, Lincoln, NMIS, Oppenheimer, and U.S. Bancorp have been charged with violating recordkeeping provisions of the Securities Exchange Act of 1934 and failing to reasonably supervise to prevent and detect these violations. On the other hand, CIRA, GPIM, HIC, KIS, Lincoln, NMIM, and Mason Street have been charged with violating recordkeeping provisions of the Investment Advisers Act of 1940 and failing to reasonably supervise to prevent and detect these violations. This is a serious matter that highlights the need for stricter compliance and oversight within the financial industry.

Furthermore, apart from facing substantial financial penalties, all of the companies were mandated to immediately halt any further breaches of the applicable recordkeeping regulations and were officially reprimanded.

Additionally, the firms willingly committed to engaging independent compliance consultants who will conduct thorough evaluations of their protocols and practices concerning the preservation of electronic communications stored on personal devices. These consultants will also assess the companies' frameworks for addressing any instances of non-compliance by their employees with the aforementioned policies and procedures.

These penalties serve as a reminder that regulatory bodies are committed to upholding the integrity of the financial industry and ensuring that firms adhere to the necessary compliance standards.

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