Wall Street firms including Wells Fargo and Paribas have been fined $549 million by regulators for improper use of private communications applications such as WhatsApp to conduct business.
The Securities and Exchange Commission has charged 10 broker-dealers and the dually registered investment advisor of a B-D with “pervasive and longstanding failures” to preserve employees “off-channel” electronic communications. The firms have agreed to pay a combined $289 million in penalties for the violations.
As part of their settlements all the firms, including three subsidiaries of Wells Fargo that paid the largest settlement at $125 million, admitted that at least since 2019 their employees often communicated through various messaging platforms on personal devices, using iMessage, WhatsApp and Signal, about employer business The firms also failed to preserve “the substantial majority” of these off-channel communications, the SEC said.
Separately, the Commodity Futures Trading Commission announced settlements involving $260 million in fines with Wells Fargo Bank NA, Wells Fargo Securities, LLC, BNP Paribas Securities Corp., BNP Paribas S.A., SG Americas Securities, LLC, Société Générale S.A., Bank of Montreal, and Wedbush Securities Inc., for related conduct.
To date, the SEC has brought 30 enforcement actions and ordered over $1.5 billion in against firms as part of a regulatory sweep SEC officials said is ongoing.
“Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement.
While some broker-dealers and investment advisors have heeded Grewal’s warning and self-reported violations or improved recordkeeping procedures, “today’s actions remind us that many still have not,” he said.
The following firms settled with the SEC:
• Wells Fargo Securities LLC, Wells Fargo Clearing Services LLC and Wells Fargo Advisors Financial Network LLC agreed to pay a $125 million penalty.
• BNP Paribas Securities Corp. and SG Americas Securities LLC have each agreed to pay penalties of $35 million.
• BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million.
• Houlihan Lokey Capital Inc. has agreed to pay a $15 million penalty.
• Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million.
• SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty.
Grewal warned firms with violations to “self-report, cooperate and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”
The SEC’s recordkeeping requirements “are essential for us to monitor and enforce compliance with the federal securities laws. Recordkeeping failures such as those here undermine our ability to exercise effective regulatory oversight, often at the expense of investors,” said Sanjay Wadhwa, the SEC's deputy director of enforcement.
“The 11 firms settling today have acknowledged that their conduct violated the law regarding these crucial requirements and are implementing measures to prevent future similar violations. However, we know that other SEC-regulated entities have committed similar violations, and so our work to enforce industry-wide compliance continues,” Wadhwa warned.
Each of the broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations.
Wedbush Securities Inc., a dually registered broker-dealer and investment advisor, was also charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations, the SEC said.