SEC Continues Messaging Crackdown, Issuing $81M in Fines Against 16 Firms

One of the charged firms, Huntington, self-reported its violation, which helped it avoid a higher penalty, the SEC said. The 16 firms, which also agreed to improve their compliance programs, are:

• Northwestern Mutual Investment Services LLC (NMIS), together with Northwestern Mutual Investment Management Co. LLC (NMIM) and Mason Street Advisors LLC (Mason Street) (collectively, Northwestern Mutual), agreed to pay a $16.5 million penalty.
• Guggenheim Securities LLC (Guggenheim Securities), together with Guggenheim Partners Investment Management LLC (GPIM) (collectively, Guggenheim), agreed to pay a $15 million penalty.
• Oppenheimer & Co. Inc. (Oppenheimer) agreed to pay a $12 million penalty.
• Cambridge Investment Research Inc. (CIR), together with Cambridge Investment Research Advisors Inc. (CIRA) (collectively, Cambridge), agreed to pay a $10 million penalty.
• Key Investment Services LLC (KIS), together with KeyBanc Capital Markets Inc. (KBCM) (collectively, Key), agreed to pay a $10 million penalty.
• Lincoln Financial Advisors Corporation, together with Lincoln Financial Securities Corporation (collectively, Lincoln), agreed to pay an $8.5 million penalty.
• S. Bancorp Investments Inc. (U.S. Bancorp) agreed to pay an $8 million penalty.
• The Huntington Investment Company (HIC), together with Huntington Securities Inc. (HSI) and Capstone Capital Markets LLC (Capstone) (collectively, Huntington), which self-reported, agreed to pay a $1.25 million penalty.

“It’s no surprise that a new wave of penalties has landed around ‘off-channel’ messaging,” said Harriet Christie, COO of MirrorWeb, a data archiving provider. “It’s also no surprise that the company that self-reported was treated with relative leniency.”

And the financial sector’s use of tools like WhatsApp are likely to remain in the agency’s crosshairs, Christie warned.

“This isn’t going to be resolved overnight, especially with so many firms failing to quickly grasp the need for a more proactive approach to compliance,” she said.

According to the SEC, its investigation uncovered “pervasive and longstanding uses of unapproved communication methods” at the broker-dealer firms and that since at least 2019 or 2020, employees used personal text messages to communicate about company business. The firms also didn’t maintain most of the off-channel communications, the agency said, noting that the recordkeeping failures were not limited to low-level employees, implicating both supervisors and senior managers.

And all 16 firms 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,” the SEC said.

“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 Grewal, director of the SEC’s Enforcement Division. “Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation.”