Three private equity firms disclosed they are under investigation by the Securities and Exchange Commission (SEC) for having allowed employees to use unauthorized communication channels like WhatsApp and WeChat to conduct company business.
Apollo Global Management, The Carlyle Group, and KKR & Co. disclosed in quarterly filings the SEC is also investigating them for not properly recording and retaining the work-related communications of their employees.
Apollo disclosed in its quarterly filing Tuesday it received a request for information and documents “in connection with an investigation concerning compliance with record retention requirements relating to business communications sent or received via electronic messaging channels.”
In a quarterly filing Tuesday, Carlyle said the SEC made a request for information to the firm “related to the preservation of certain types of electronic business communications (e.g., text messages and messages on WhatsApp, WeChat, and similar applications).” Carlyle said it intends to fully comply with the SEC’s inquiry.
KKR also disclosed the SEC investigation Tuesday in a quarterly filing, saying the agency’s probe is “related to business-related electronic communications.” The company said it intends to cooperate with the investigation.
The investigations are part of a continuing sweep by the SEC regarding the use of unauthorized channels for business communications, which the agency has found to be endemic in the financial services industry. The SEC made a point during examinations to ask for a firm’s policies and procedures regarding electronic communications on business-related matters by employees on their personal cell phones and whether those policies and procedures are being adequately enforced.
In its disclosure, Apollo noted, “As publicly reported, the SEC is conducting similar investigations of other investment advisers.”
In September, the SEC levied fines worth a total of $1.8 billion and the Commodity Futures Trading Commission (CFTC) issued another $711 million in penalties on 11 banks and investment firms for “widespread and longstanding failures” in monitoring, maintaining, and preserving electronic communications by employees. Among the firms caught in the sweep were Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, and UBS.
In December 2021, the regulators began the sweep on off-channel communications with a combined $200 million fine levied against JPMorgan Chase.
Many of the firms disclosed the existence of an investigation into their off-channel communications before the regulators announced the fines.
In those enforcement actions, the two regulators found systemic use of off-channel electronic communications by company employees from 2018-21 on business-related topics conducted on personal cell phones; messaging apps, including WhatsApp; and other channels. These messages were not captured, recorded, and stored by the firms, as required by the SEC’s and CFTC’s recordkeeping, books and records, and supervision requirements for market participants.
The wrongdoing was pervasive and included senior managers at the firms who themselves were supposed to be enforcing the rules, the regulators said.