The long arm of the SEC stretched deeper into the independent advisory and brokerage industries this week with more than $390 million in fines against 26 firms for violations related to "off channel" communications.
The Securities and Exchange Commission announced Wednesday that it had reached a $392.75 million settlement with some of the biggest players in the advisory and brokerage world over their alleged failures to track and maintain business-related messages often sent on encrypted services such as WhatsApp. The firms in the regulatory sweep include well-known names like Ameriprise, Edward Jones, LPL Financial, Raymond James, BNY Pershing and RBC Capital Markets.
The largest penalty amount for an individual firm was $50 million, charged to Ameriprise, Edward Jones, LPL and Raymond James. The smallest, $400,000, went to Haitong International Securities, an investment bank based in Hong Kong.
Separately, the Commodities Futures Trading Commission, which regulates U.S. derivatives markets, announced it had reached an $85 million settlement over similar allegations with three firms also named in the SEC's sweep: TD Bank, Cowan and Company and Truist Bank.
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"Among this group of firms, there are several that differentiated themselves by self-reporting prior to the staff's investigation, demonstrating once again the real benefits of proactive cooperation," SEC Director of Enforcement Gurbir Grewal said in a statement.
Previous rounds of the SEC's enforcement blitz have nabbed most of the big names on Wall Street. Over the past two and a half years, the SEC has slammed firms large and small with more than $3 billion in fines in total.
JPMorgan was the first to get hit,
Regional firms like Raymond James and LPL have been signaling in recent SEC filings that settlements were coming with the SEC over their alleged abuses of off-channel communications. A spokesperson for LPL said on Wednesday, "We cooperated with the SEC's investigation and have taken proactive steps to enhance our recordkeeping compliance procedures to meet regulatory requirements and the needs of our clients."
A spokesperson for RBC said, "We are pleased to have resolved this matter. We remain focused on upholding all regulatory requirements and continuing to enhance our compliance protocols."
A spokesperson for Piper Sandler, another firm hit in the latest sweep, declined to comment. Other firms reached for comment did not respond immediately.
The SEC said all the firms in the probe have agreed to take steps to prevent similar violations from recurring.
Regulators look askance at off-channel communications primarily because of concerns that they won't be able to retrieve encrypted messages during investigations. Messages that advisors send to each other or to clients often contain key evidence in probes into everything from previous investment advice to insider trading.
Louis Straney, a regulatory expert at
Not having those messages, Straney said, "makes it more difficult to come back and seek any kind of recovery, if there has been misconduct, because those texts often aren't available to use in discovery."
Although most of the big names in wealth management have now been hit with penalties, Straney said he thinks the industry's problems with off-channel communications are far from over.
"[The SEC is] going to have to go back to some firms because they didn't listen the first time around," he said. "It's going to have to be a constant supervisory effort on the regulators' part."
The firms targeted in the SEC's latest regulatory sweep, and the amounts they have to pay, are:
- Ameriprise Financial Services, $50 million
- Edward Jones, $50 million
- LPL Financial, $50 million
- Raymond James, $50 million
- RBC Capital Markets, $45 million
- BNY Mellon Securities and Pershing, $40 million
- TD Securities, TD Private Client Wealth and Epoch Investment Partners, $30 million
- Osaic Services and Osaic Wealth, $18 million
- Cowen and Company and Cowen Investment Management, $16.5 million
- Piper Sandler, $14 million
- First Trust Portfolios, $8 million
- Apex Clearing Corp., $6 million
- Truist Securities, Truist Investment Services and Truist Advisory Services, $5.5 million
- Cetera Advisor Networks and Cetera Investment Services, $4.5 million
- Great Point Capital, $2 million
- Hilltop Securities, $1.6 million
- P. Schoenfeld Asset Management, $1.25 million
- Haitong International Securities, $400,000
