Major hedge funds have been asked by US regulators to review certain employees’ personal mobile phones as part of a mushrooming probe into Wall Street’s use of unofficial messaging platforms like WhatsApp to conduct business.
The Securities and Exchange Commission recently asked Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel and several other firms to search through the devices for evidence of business dealings on unapproved channels, according to people familiar with the matter who asked not to be identified discussing the private requests. The SEC is also probing the practices of brokerages, money managers and private equity firms.
Representatives for Point72 and Citadel declined to comment. Neither firm has been accused of wrongdoing. The inquiries are part of a broader request that also went to other hedge funds, the people said. The SEC declined to comment.
The asset-management industry is quickly emerging as the new front in the SEC’s sweeping look into whether financial professionals are using unofficial communications to do things like cut deals, win clients or make trades.
The agency under Chair Gary Gensler has made the issue a focus, arguing that business conducted outside of the view of a company’s compliance department can make it harder for the regulator to investigate potential wrongdoing later. The SEC has already fined banks more than $1 billion for violations.
Although the SEC had previously asked investment firms for information on policies and key staff whose texts and emails are supposed to be archived, a request to image and review the devices has sparked fresh pushback. On Tuesday, top industry trade groups sent Gensler a letter, citing “serious privacy implications.”
Making copies of people’s phones poses risks of data breaches and exposing highly personal information, including health and financial information, or passwords, according to the letter, which was signed by the Managed Funds Association, Investment Company Institute, American Investment Council and the U.S. Chamber of Commerce, among others.
In general, money managers face less expansive SEC recordkeeping rules than brokerages, with retention focused on documents related to investment advice. But investment firms, like banks, are required to monitor communications involving their business to head off improper conduct.
The trade groups argued that the SEC was overreaching in its request. The regulator, they said, was seeking to improperly hold investment advisers to a standard that’s meant for brokerages and not money managers.
Most of the details of the request to the hedge funds couldn’t be determined. However, the effort resembles a move by the SEC last year to demand that banks embark on a systematic search through more than 100 personal mobile phones carried by top traders and dealmakers. The push sent shivers across Wall Street.
At the time, people familiar with requests said that the process required firms to take extraordinary steps to protect privacy. Banks arranged for outside attorneys to help conduct the reviews and to act as intermediaries. The lawyers were asked to look for business-related messages.
This article was provided by Bloomberg News.