The ongoing off-channel communications sweep by the Securities and Exchange Commission (SEC) netted 16 more broker-dealers and investment advisers, with the latest wave of fines totaling more than $81 million.
The firms each admitted they violated the recordkeeping provisions of federal securities laws when their employees communicated about company business on nonauthorized channels that were not supervised, monitored, recorded, or archived. In addition to paying fines, which ranged from $16.5 million to $1.25 million, the firms each took steps to remediate the issues, the SEC said Friday in a press release.
The firms and the amounts fined were:
- Northwestern Mutual Investment Services and subsidiaries Northwestern Mutual Investment Management Co. and Mason Street Advisors: $16.5 million;
- Guggenheim Securities and subsidiary Guggenheim Partners Investment Management: $15 million;
- Oppenheimer & Co.: $12 million;
- Cambridge Investment Research and subsidiary Cambridge Investment Research Advisors: $10 million;
- Key Investment Services and subsidiary KeyBanc Capital Markets: $10 million;
- Lincoln Financial Advisors Corp. and subsidiary Lincoln Financial Securities Corp.: $8.5 million;
- U.S. Bancorp Investments: $8 million; and
- Huntington Investment Company and subsidiaries Huntington Securities and Capstone Capital Markets: $1.25 million.
Huntington was singled out and praised by the SEC for self-reporting its violations.
Compliance considerations: The SEC found each of the firms had policies and procedures that required employees to use authorized channels for discussing company business but failed to properly supervise those communications. Firm employees regularly communicated off-channel on their personal devices over many years.
At Northwestern Mutual, the violations stretched back to 2019 and involved a senior executive, a managing director, senior supervisors, and junior personnel, according to the SEC’s order.
At Huntington, compliance staff identified business-related communications by employees on a nonapproved platform, conducted an internal investigation, and self-reported the violation, according to the SEC’s order. Huntington showed it had taken steps to remediate the issue as far back as 2019 by strengthening policies and procedures, making investments in new technologies to improve surveillance and retention efforts, increasing training, and making an on-channel texting platform available as of 2021, the SEC said.
As part of their remediation, each firm agreed to hire an independent compliance consultant who would conduct a comprehensive review of their respective compliance with federal recordkeeping laws, including evaluations of off-channel communications policies and procedures, training, surveillance programs, technological solutions, and frameworks that address instances of noncompliance.
The SEC and Commodity Futures Trading Commission’s crackdown on recordkeeping failures by financial services firms regarding employee use of off-channel communications for business purposes began in December 2021 and hasn’t shown any signs of slowing.
The agencies have combined to levy about $2.8 billion in penalties against firms and their affiliates in response to the violations.
- Cambridge Investment Research
- Financial Services
- Guggenheim Securities
- Huntington Investment Company
- Key Investment Services
- Lincoln Financial Advisors Corp.
- Northwestern Mutual Investment Services
- off-channel communications
- Oppenheimer & Co.
- Regulatory Enforcement
- Risk Management
- Securities and Exchange Commission
- U.S. Bancorp Investments
- United States