The Securities & Exchange Commission today announced charges against five broker-dealers, three dually registered broker-dealers & investment advisers, & two affiliated investment advisers for widespread & longstanding failures to maintain & preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders & acknowledged that their conduct violated recordkeeping provisions of the federal securities laws. The firms agreed to pay combined penalties of $79 million as outlined below & have begun implementing improvements to their compliance policies & procedures to address these violations.
- Interactive Brokers Corp. & affiliate Interactive Brokers LLC (together, Interactive Brokers) agreed to pay a $35 million penalty;
- Robert W. Baird & Co. Inc. agreed to pay a $15 million penalty;
- William Blair & Company LLC & affiliate William Blair Investment Management LLC (WBIM) agreed to pay a $10 million penalty;
- Nuveen Securities LLC agreed to pay an $8.5 million penalty;
- Fifth Third Securities Inc. agreed to pay an $8 million penalty; &
- Perella Weinberg Partners LP (Perella Weinberg), together with Tudor, Pickering, Holt & Co. Securities LLC (TPH) & Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), which self-reported, agreed to pay a $2.5 million penalty.
“One of the orders included in today’s announced actions is not like the others,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “There are real benefits to self-reporting, remediating & cooperating.”
The SEC’s investigations uncovered pervasive & longstanding off-channel communications at all 10 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019, their employees communicated through personal text messages about the business of their employers, & the investment adviser firms admitted that their employees sent & received off-channel communications related to recommendations made or proposed to be made & advice given or proposed to be given. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain & preserve required records, certain of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors & senior managers.
Interactive Brokers, Baird, William Blair, Nuveen, Fifth Third, Perella Weinberg, & TPH were each charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 & with failing to reasonably supervise with a view to preventing & detecting those violations. Baird, William Blair, WBIM, Fifth Third, & Perella Weinberg Capital were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 & with failing to reasonably supervise with a view to preventing & detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease & desist from future violations of the relevant recordkeeping provisions & was censured. The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies & procedures relating to the retention of electronic communications found on personal devices & their respective frameworks for addressing non-compliance by their employees with those policies & procedures.
Separately, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.
The SEC’s investigations into Interactive Brokers, Perella Weinberg, TPH, & Perella Weinberg Capital were conducted by Laurel S. Fensterstock, Karolina Klyuchnikova, Austin Thompson, & Alison R. Levine & supervised by Thomas P. Smith Jr. of the New York Regional Office. The SEC’s investigations into Baird, William Blair, WBIM, Nuveen, & Fifth Third were conducted by Som P. Dalal, Ruta G. Dudenas, Amy S. Cotter, & Anne C. McKinley & supervised by Paul A. Montoya & Kathryn A. Pyszka of the Chicago Regional Office.