Charles Schwab offices in Baltimore, MD. Photo: Diego M. Radzinschi/ALM
The Securities and Exchange Commission has announced charges against Charles Schwab, Blackstone and seven other investment advisers, as well as three broker-dealers, for allowing their employees to use unapproved communication methods, such as WhatsApp and LinkedIn, to send and receive messages that were required to be preserved, in violation of recordkeeping provisions of federal laws.
“When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement.
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This latest enforcement is part of a risk-based initiative the SEC launched in 2021 to identify companies that allow their employees to use personal email or text messaging on personal devices, which make it easy for them to communicate outside of channels subject to recordkeeping controls.
The agency has since investigated some 60 companies and imposed fines of almost $3 billion. Last August, Ameriprise, Raymond James and Edward Jones each paid a $50 million penalty, after a years-long SEC sweep of 26 firms for "widespread and longstanding failures" to preserve electronic communications. In another similar sweep of 11 firms last September, Stifel Financial and Invesco each paid a $35 million penalty to the SEC.
In this latest SEC enforcement, the following 12 firms will pay a combined $63.1 million to resolve SEC allegations that they failed to properly keep records and have begun implementing improvements to their compliance policies and procedures to address these violations:
- Blackstone Alternative Credit Advisors, together with Blackstone Management Partners and Blackstone Real Estate Advisors: $12 million
- Kohlberg Kravis Roberts & Co.: $11 million
- Charles Schwab & Co.: $10 million
- Apollo Capital Management: $8.5 million
- Carlyle Investment Management, together with Carlyle Global Credit Investment Management, and AlpInvest Partners: $8.5 million
- TPG Capital Advisors: $8.5 million
- Santander US Capital Markets: $4 million
- PJT Partners: $600,000 (PJT Partners self-reported its violations and, as a result, will pay significantly lower civil penalties, according to the SEC.)
Each of the SEC’s investigations uncovered the use of unapproved communication methods, known as off-channel communications, by employees at these firms, including supervisors and senior managers.
Related: Stifel Financial, Invesco fined $35M each by SEC for misuse of texting apps, in latest crackdown
The firms were each charged with violating certain recordkeeping provisions of the Investment Advisers Act or the Securities Exchange Act. The firms were also each charged with failing to reasonably supervise their personnel. In addition, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
