Ameriprise & other investment firms fined $393M by SEC for misuse of texting apps

Ameriprise, Edward Jones, BNY Mellon and other big names in wealth management have agreed to pay hefty fines, after a years-long sweep of 26 firms for “widespread and longstanding failures” to preserve electronic communications.

In an enforcement action announced on Wednesday, the Securities and Exchange Commission announced charges against 26 broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers for “widespread and longstanding failures” by the firms and their personnel to maintain and preserve electronic communications, said the SEC statement.

Essentially, the firms failed to monitor traders’ use of messaging apps such as WhatsApp and iMessage. Each of the firms acknowledged that their conduct “violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $392.75 million, and have begun implementing improvements to their compliance policies and procedures to address these violations, said the SEC.

The steepest fines went to some of the top wealth management firms, including:

• Ameriprise Financial Services agreed to pay a $50 million penalty
• Edward D. Jones & Co. agreed to pay a $50 million penalty
• LPL Financial agreed to pay a $50 million penalty
• Raymond James & Associates, agreed to pay a $50 million penalty
• RBC Capital Markets agreed to pay a $45 million penalty
• BNY Mellon Securities Corporation, together with Pershing, agreed to pay a $40 million penalty
• TD Securities, together with TD Private Client Wealth and Epoch Investment Partners, agreed to pay a $30 million penalty

“We remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “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.”

Those who self-reported misuse include: Truist Securities, Inc., which will pay a $5.5 million penalty; Cetera Advisor Networks, which will pay a $4.5 million penalty; and Hilltop Securities, which will pay a $1.6 million penalty.

Each of the SEC’s investigations uncovered “pervasive and longstanding use of unapproved communication methods” at these firms, known as off-channel communications, such as WhatsApp and iMessage. The firms admitted that, during the relevant periods, their personnel sent and received off-channel communications that were records required to be maintained under the securities laws, said the SEC. The failure to maintain and preserve required records deprives the SEC of these communications in its investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.

Related: Form CRS crackdown: SEC fines 21 advisors, 6 broker-dealers over compliance flaws

The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both, as well as failing to reasonably supervise their personnel with a view to preventing and detecting those violations.

In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured.