The Securities and Exchange Commission today announced that Stifel, Nicolaus & Company, Inc. and Invesco Distributors, Inc., together with Invesco Advisers, Inc., each agreed to pay fines of $35 million for recordkeeping failures related to failing to preserve employees’ off-channel communications.
Today’s announcement from the SEC—coming nearly five weeks after another announcement charging 26 firms nearly $400 million (see below)—included 12 firms overall comprised of broker-dealers, investment advisers, and one dually registered broker-dealer and investment adviser, agreeing to pay more than $88 million combined to settle charges for widespread recordkeeping failures. $70 million of that is from the Stifel and Invesco fines.
The SEC said in a press release today that the charges related to “widespread and longstanding failures” by the firms and their personnel to maintain and preserve electronic communications in violation of recordkeeping provisions of the federal securities laws.
The firms admitted the facts from their respective SEC orders, acknowledged their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $88,225,000 as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. The firms are as follows:
• Stifel, Nicolaus & Company, Inc. agreed to pay a $35 million penalty;
• Invesco Distributors, Inc., together with Invesco Advisers, Inc., agreed to pay a $35 million penalty;
• CIBC World Markets Corp., together with CIBC Private Wealth Advisors, Inc., agreed to pay a $12 million penalty;
• Glazer Capital, LLC agreed to pay a $2 million penalty;
• Intesa Sanpaolo IMI Securities Corp., agreed to pay a $1.5 million penalty;
• Canaccord Genuity LLC agreed to pay a $1.25 million penalty;
• Regions Securities LLC agreed to pay a $750,000 penalty;
• Alpaca Securities LLC agreed to pay a $400,000 penalty;
• Focused Wealth Management, Inc. agreed to pay a $325,000 penalty; and
• Qatalyst Partners LP will not pay a penalty.
“Today’s enforcement actions reflect the range of remedies that parties may face for violating the recordkeeping requirements of the federal securities laws. Widespread and longstanding failures, including where those failures potentially hinder the Commission’s investor protection function by compromising a firm’s response to SEC subpoenas, may result in robust civil penalties,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.
“On the other hand, firms that self-report and otherwise cooperate with the SEC’s investigations may receive significantly reduced penalties,” Grewal continued. “Here, despite recordkeeping failures that involved communications by senior leadership and persisted after our first recordkeeping matters were announced in 2021, Qatalyst took substantial steps to comply, self-reported, and remediated and, therefore, received a no-penalty resolution.”
The SEC’s investigations into all the firms except for Qatalyst uncovered pervasive and longstanding use of unapproved communication methods, known as off-channel communications, at these firms. As described in the SEC’s orders, the firms admitted that during the periods relevant to each order, their personnel sent and received off-channel communications that were records required to be maintained under securities laws.
“The failure to maintain and preserve required records deprives the SEC of these communications in our investigations. The failures involved personnel at multiple levels of authority, including supervisors and senior managers,” the press release said.
In contrast, in response to the Commission’s recent off-channel enforcement actions, Qatalyst conducted an internal investigation and uncovered that Qatalyst personnel at various levels of authority sent and received off-channel communications, which Qatalyst did not maintain or preserve, that related to its broker-dealer business. Qatalyst will not pay a penalty because it self-reported its recordkeeping violations, cooperated with the staff’s investigation, and demonstrated substantial efforts at compliance with the recordkeeping requirements. Two additional firms, Canaccord and Regions, also self-reported their violations and, as a result, will pay significantly lower civil penalties than they would have otherwise.
The firms were each charged with violating certain recordkeeping provisions of the Securities Exchange Act or the Investment Advisers Act or both. In addition, all but one of the firms failed to reasonably supervise their personnel with a view to preventing and detecting those violations. The SEC’s order against Focused Wealth also found that the firm failed to adopt and implement policies and procedures reasonably designed to prevent the firm and its supervised persons from violating recordkeeping requirements.
Each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. Ten of the firms also agreed to retain compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their personnel with those policies and procedures.
Recordkeeping crackdown continues, self-reporting encouraged
Today’s news also comes on the heels of the SEC announcing on Aug. 14 charges totaling nearly $400 million against 26 broker-dealers, investment advisers, and dually registered broker-dealers and investment advisors for “widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications” related to texting and the use of unauthorized messaging apps.
In that action, four firms received the largest fines at $50 million each, including Ameriprise Financial Services, LLC; Edward D. Jones & Co., L.P.; LPL Financial LLC; and Raymond James & Associates, Inc. RBC Capital Markets, LLC agreed to pay a $45 million penalty and BNY Mellon Securities Corporation, together with Pershing LLC, agreed to pay a $40 million penalty.
On Sept. 17, the SEC announced charges against 12 municipal advisors for failures by the firms and their personnel to maintain and preserve certain electronic communications. The firms agreed to pay combined civil penalties of more than $1.3 million to settle the SEC’s charges.
The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, have begun implementing improvements to their compliance policies and procedures to address these violations, and agreed to pay the following civil penalties:
• Acacia Financial Group Inc. agreed to pay a civil penalty of $52,000;
• Caine Mitter and Associates Inc. agreed to pay a civil penalty of $94,000;
• cfX Inc. agreed to pay a civil penalty of $42,000;
• CSG Advisors Inc. agreed to pay a civil penalty of $40,000;
• Kaufman Hall & Associates LLC, together with Ponder & Company, agreed to pay a civil penalty of $324,000;
• Montague DeRose & Associates LLC agreed to pay a civil penalty of $40,000;
• PFM Financial Advisors LLC agreed to pay a civil penalty of $250,000;
• Phoenix Advisors LLC agreed to pay a civil penalty of $40,000;
• Public Resources Advisory Group Inc. agreed to pay a civil penalty of $184,000;
• Specialized Public Finance Inc. agreed to pay a civil penalty of $250,000; and
• Zions Public Finance Inc. agreed to pay a civil penalty of $47,000.
“The books and records requirements are critical to facilitating Commission inspections and examinations of municipal advisors and in evaluating a municipal advisor’s compliance with the applicable federal securities laws,” said Rebecca Olsen, Deputy Chief of the SEC’s Division of Enforcement Public Finance Abuse Unit. “Municipal advisors are encouraged to assess their recordkeeping practices relating to off-channel communications. Firms that believe their practices do not comply with the securities laws are encouraged to self-report to the SEC’s Enforcement staff.”
As described in the SEC’s orders, the firms admitted that, during the relevant periods, they failed to maintain and preserve communications sent and/or received by their personnel relating to municipal advisory activity and that these communications were records required to be maintained and preserved under the federal securities laws. The failures involved personnel at multiple levels of authority, including supervisors.
The firms were each charged with supervision failures and with violating certain recordkeeping provisions of the Securities Exchange Act and the rules of the Municipal Securities Rulemaking Board. In addition to the financial penalties, each of the firms was censured and ordered to cease and desist from future violations of the relevant recordkeeping provisions.
SEE ALSO:
• SEC Fines 26 Firms Nearly $400 Million for Recordkeeping Failures
• SEC Fines Idaho RIA for Missteps Related to ‘Biblically Responsible Investing’ Strategy
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
