SEC fines firms over $88 million for record-keeping violations

The Securities and Exchange Commission charged 12 firms with record-keeping violations, and levied a total of more than $88 million in fines against 11 of them, as the agency said the firms failed to maintain and preserve electronic communications.

The firms — which include broker-dealers, investment advisers, and one dually-registered broker-dealer and investment adviser — acknowledged their conduct violated federal securities laws and have begun making improvements to their compliance policies and procedures to address these violations, according to an SEC news release from Sept. 24.

Only 11 of the firms will pay civil penalties, which total more than $88 million, the SEC said.

Qatalyst Partners will not pay a penalty “because it self-reported its record-keeping violations, cooperated with the staff’s investigation, and demonstrated substantial efforts at compliance with the record-keeping requirements,” according to the news release.

The SEC’s investigations into all the firms excluding Qatalyst “uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications,” the news release said.

“Two additional firms, Canaccord and Regions, also self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise,” according to the release.

The firms and their respective penalties are:
• Stifel, Nicolaus & Company - $35 million
• Invesco Distributors, together with Invesco Advisers - $35 million
• CIBC World Markets Corp., together with CIBC Private Wealth Advisors - $12 million
• Glazer Capital - $2 million
• Intesa Sanpaolo IMI Securities Corp. - $1.5 million
• Canaccord Genuity - $1.25 million
• Regions Securities - $750,000
• Alpaca Securities - $400,000
• Focused Wealth Management - $325,000
• Qatalyst Partners - no penalty

At a Sept. 24 House hearing, Republican SEC Commissioner Hester Peirce said that off-channel communications cases have "become a cash cow" for the agency.

While a record-keeping violation is "a serious problem," she continued, "I think we need to address it not through enforcement first, but through regulatory work."

The enforcement actions “reflect the range of remedies that parties may face for violating the record-keeping requirements of the federal securities laws,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in the agency news release.

“Widespread and longstanding failures, including where those failures potentially hinder the Commission’s investor protection function by compromising a firm’s response to SEC subpoenas, may result in robust civil penalties. On the other hand, firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties,” Grewal added, acknowledging that Qatalyst will not pay any penalty.

Earlier this month, the SEC charged Moody’s Investors Service, S&P Global Ratings, Fitch Ratings and three other credit rating agencies with similar record-keeping violations.

Republican SEC Commissioners Hester Peirce and Mark Uyeda released their own statement on Sept. 24, contending, “it does not appear that firms have an achievable path to compliance” in off-channel communications cases.

“Accordingly, we voted no on Qatalyst Partners LP, and urge our colleagues to reconsider our current approach to the off-channel communications issue,” Peirce and Uyeda said.

The commissioners emphasized that “Qatalyst has been working to address the off-channel issue for at least sixteen years,” as the SEC’s order notes that, starting in 2008, employees were told that the use of unapproved electronic communications, including personal email, chats or text messaging, was not allowed.

“This case should serve as a catalyst for the Commission,” Peirce and Uyeda continued in their statement. “We need to work with the industry and other interested members of the public to develop a pragmatic and privacy-respecting approach that enables firms and the Commission to have the records they need for compliance, examination, and enforcement at a reasonable cost in both financial and privacy terms.”

Sally Palmer, Qatalyst’s chief compliance officer, said in an email that the company does not have any comment and will “just let the settlement and the commissioner dissent speak for themselves.”

A Regions spokesperson said in a statement that the company is “pleased to resolve this matter. We self-reported the issue, and we’ve taken steps to re-enforce and enhance compliance moving forward.”

An Invesco spokesperson said in a statement, “Invesco takes compliance matters incredibly seriously and we are pleased to have resolved this matter. We have already taken significant steps to further strengthen the firm’s compliance processes related to record-keeping electronic communications.”

CIBC said in a statement, “We respect the decisions of the SEC and CFTC on these matters,” referencing a similar Sept. 24 charge from the Commodity Futures Trading Commission, which imposed a $30 million civil monetary penalty. “Throughout this process, CIBC offered its full cooperation to both regulators and took immediate steps to implement remedies internally,” the statement said.

A spokesperson for Stifel declined to comment. The remaining firms did not immediately respond to requests for comment.