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Investigations by the SEC into off-channel discussions by workers

Three private equity firms have stated that the Securities and Exchange Commission (SEC) is looking into them for allowing staff to do business using unauthorized communication apps like WhatsApp and WeChat.

Carlyle Group, KKR & Co., and Apollo Global Management Inc. stated in its quarterly reports that the SEC is also looking into them for failing to properly record and keep track of their employees' work-related interactions.


In its quarterly report on Tuesday, Apollo stated that it had been asked 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."


The SEC asked the Carlyle Group for information "related to the preservation of certain types of electronic business communications (e.g., text messages and messages on WhatsApp, WeChat, and similar applications)," according to a quarterly filing made public on Tuesday. The Carlyle Group said it intends to fully abide by the SEC's inquiry.

The SEC inquiry was also reported by KKR & Co. on Tuesday in a quarterly filing, where it was stated that the investigation is "related to business-related electronic communications" and that the company plans to comply.


The probes are a part of the SEC's ongoing investigation into business communications conducted through unlawful channels, which the agency has discovered to be widespread in the financial services sector. In order to determine whether a company's rules and procedures addressing electronic communications by employees on their personal mobile phones on work-related topics are being properly enforced, the SEC made it a point to request them during examinations.


"As publicly reported, the SEC is conducting similar investigations of other investment advisers," Apollo said in its disclosure.


For "widespread and longstanding failures" to monitor, maintain, and preserve employee electronic communications, the SEC assessed fines totalling $1.1 billion in September, and the Commodity Futures Trading Commission (CFTC) imposed additional $711 million in penalties on 11 banks and investment firms. Bank of America, Barclays Bank, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley, and UBS were some of the companies swept up in the operation.


The regulators started their investigation into off-channel communications in December 2021 by fining JPMorgan Chase a total of $200 million.


Before the regulators issued the penalty, many of the companies made it known that there was an inquiry into their off-channel conversations.


In those enforcement actions, the two authorities discovered a pattern of corporate employees using personal cell phones, messaging applications, including WhatsApp, and other channels to conduct business-related electronic communications from 2018 to 21. As required by the SEC and CFTC's recordkeeping, books and records, and supervisory requirements for market participants, these messages were not captured, documented, and stored by the firms.


The regulators claimed that the wrongdoing was widespread and involved senior managers at the firms who were in charge of upholding the law.

By fLEXI tEAM



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