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Clampdown on Unapproved Channels


The Securities and Exchange Commission (SEC) disclosed settlements involving various brokers and RIAs. These settlements encompassed dually registered firms, as well as cases involving a corporate entity and its affiliated broker-dealer or advisor firm.

Interactive Brokers Faces Multi-Million Dollar Fines

Among the implicated firms, Interactive Brokers Corp. and its consumer-facing affiliate, Interactive Brokers, agreed to pay a total of $55 million to settle the charges. The SEC’s penalty, at $35 million, represented the largest individual settlement, while an additional $20 million resolved allegations made by the Commodity Futures Trading Commission (CFTC). The brokerage firm, headquartered in Greenwich, Connecticut, declined to comment on the matter.

Acknowledgment of Wrongdoing and Commitment to Reforms

In each case brought forward by the SEC, the firms involved admitted wrongdoing as part of their settlements. They have also committed to implementing internal reforms to address the issue at hand. The SEC’s investigations uncovered “pervasive and longstanding off-channel communications” at each advisor firm and broker-dealer subject to enforcement action. According to the SEC, these firms violated federal securities laws by failing to preserve or maintain the majority of these off-channel communications.

The imposition of these substantial fines sends a clear message to the financial industry about the importance of proper communication protocols and regulatory compliance. By ensuring that all communications are recorded, firms can demonstrate transparency and accountability in their operations.

SEC Imposes Substantial Fines in Off-Channel Communications Cases

The Securities and Exchange Commission (SEC) has once again issued a significant package of bundled disciplinary actions in relation to off-channel communications. This marks the third occurrence of such actions, with the first taking place in September of last year. On that occasion, the SEC, along with the Commodity Futures Trading Commission (CFTC), fined more than a dozen of Wall Street’s largest firms a staggering $1.8 billion.

A subsequent wave of cases surfaced in August of this year, resulting in the SEC imposing fines totaling over $549 million against Wells Fargo and a few other firms for engaging in similar conduct.

The SEC has left little room for ambiguity regarding its stance on this issue. The agency’s enforcement chief has emphasized the critical importance of firms accurately recording all employee communications. This means that only approved channels should be utilized for conducting business on behalf of the firm.

Gurbir Grewal, director of the Division of Enforcement, has further outlined the SEC’s intentional strategy of announcing settlements collectively. By accumulating substantial fines across multiple firms, the SEC seeks to create significant deterrents and draw the attention of others in the industry to prevent similar misconduct.

The recent announcement on Friday represents the latest development in this ongoing saga. In addition to Interactive Brokers, the SEC has announced settlements with Robert W. Baird, who will pay $15 million, William Blair & Co. and its affiliate William Blair Investment Management with a payment of $10 million, Nuveen Securities with $8.5 million, and Fifth Third Securities with $8 million.

Compliance Procedures Upgraded in Response to SEC Findings

Angela Taylor of Baird expresses disappointment but acknowledges the recent improvements made to their compliance procedures following the SEC’s findings. The firm is satisfied with the resolution of the matter.

Nuveen also highlights their satisfaction with resolving the issue.

However, William Blair and Fifth Third representatives declined to provide comments.

Perella Weinberg Partners, Tudor, Pickering, Holt Securities, and Perella Weinberg Partners Capital Management were also mentioned in the SEC’s enforcement actions. They were subjected to a fine of $2.5 million, albeit lower than others, as Perella Weinberg’s compliance staff detected non-compliant communications via WhatsApp and text messages on employees’ personal phones.

Upon discovery, Perella Weinberg initiated an internal investigation and promptly reported the facts to the commission. The SEC, recognizing their proactive approach, credited the firm for assisting in the investigation and implementing significant remedial measures such as enhancing surveillance practices and equipping employees with personal devices that only support approved communications platforms.

Grewal notes that one of the orders issued in today’s announcement differs from the rest, emphasizing the advantages of self-reporting, remediation, and cooperation.

Perella Weinberg’s spokeswoman declined to comment on the settlement.

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