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In a continued crackdown on off-channel communications violations, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have levied over $477 million in fines against a new group of broker-dealers, investment advisers, and swaps dealers.
This brings the total fines issued for such violations since 2021 to an astounding $3.2 billion.
The fines, announced on Wednesday, are part of an ongoing enforcement sweep targeting firms that failed to properly maintain and preserve their employees' electronic communications.
The violations, according to the regulators, were extensive and persistent, involving employees at all levels, from junior staff to senior managers who were responsible for enforcing communication policies. These policies required the use of approved, monitored electronic communication tools and explicitly forbade the use of nonapproved channels, such as personal emails, chats, and instant messaging apps, for conducting company business.
This latest enforcement action is the most significant since the regulators imposed $555 million in fines in August 2023. Notably, three firms—Truist Securities, Cetera Advisor Networks, and Hilltop Securities—self-reported their violations and received reduced fines.
The firms and their subsidiaries facing penalties include:
TD Bank, along with TD Securities (USA), TD Private Client Wealth, and Epoch Investment Partners: fined a total of $109 million, with $75 million and $4 million in separate fines to the CFTC and $30 million to the SEC.
Ameriprise Financial Services: fined $50 million by the SEC, a penalty that had been anticipated as the company had set aside funds for it in February.
Edward D. Jones & Co.: fined $50 million by the SEC.
LPL Financial: fined $50 million by the SEC.
Raymond James & Associates, Inc.: fined $50 million by the SEC.
RBC Capital Markets: fined $45 million by the SEC.
BNY Mellon Securities Corporation and Pershing LLC: fined $40 million by the SEC.
Cowen and Company, along with Cowen Investment Management: fined $19.5 million, with $16.5 million to the SEC and $3 million to the CFTC.
Osaic Services and Osaic Wealth: fined $18 million by the SEC.
Piper Sandler & Co.: fined $14 million by the SEC.
Truist Bank, Truist Securities, Truist Investment Services, and Truist Advisory Services: fined a total of $8.5 million, with $5.5 million to the SEC and $3 million to the CFTC.
First Trust Portfolios: fined $8 million by the SEC.
Apex Clearing Corp.: fined $6 million by the SEC.
Cetera Advisor Networks and Cetera Investment Services: fined $4.5 million by the SEC.
Great Point Capital: fined $2 million by the SEC.
Hilltop Securities: fined $1.6 million by the SEC.
P. Schoenfeld Asset Management: fined $1.25 million by the SEC.
Haitong International Securities (USA): fined $400,000 by the SEC.
In a waiver order covering all fines issued, the SEC stated that the firms “admit to facts set forth in their respective recordkeeping orders and acknowledge that their conduct violated the federal securities laws” and agreed to cease and desist from future violations.
As part of the settlement, each fined firm is required to hire a compliance consultant to conduct a comprehensive review of their supervisory, compliance, and other policies and procedures. These firms must submit progress reports on their remediation efforts to the SEC. The SEC did not specify how much the fines were reduced for the three firms that self-reported their violations, only that self-reporting was taken into consideration.
The individual orders provided insight into the types of remediation actions the firms have taken. For instance, Truist Securities reported its violations to the SEC following an internal investigation into off-channel communication use by employees, which began in 2022. To address the misconduct, Truist "issued firm-owned devices to customer-facing or client-facing personnel; strengthened its self-policing procedures, including by making investments in new technologies to improve surveillance efforts and enhancing internal certifications; and conducted trainings and sent firm-wide reminders that emphasized the importance of complying with recordkeeping obligations." Additionally, the firm took “proactive steps to onboard and preserve off-channel communications.”
Cetera also took steps to remediate its violations by investing in new technologies to improve surveillance and retention, including rolling out an on-channel messaging application to employees in September 2020. Meanwhile, Hilltop addressed its violations by making an on-channel texting platform available in October 2019 and providing corporate mobile devices to its executive committee members in January 2021, according to the SEC.
By fLEXI tEAM
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