The Securities and Exchange Commission today announced charges against 12 firms, comprising broker-dealers, investment advisers, and one dually-registered broker-dealer and investment adviser, for 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 set forth in 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. 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.
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.
Separately, the Commodity Futures Trading Commission announced a settlement with Canadian Imperial Bank of Commerce for related conduct.
The SEC’s investigations into Stifel, CIBC, Intesa, Canaccord, Alpaca, and Qatalyst were conducted by Laurel S. Fensterstock, Karolina Klyuchnikova, Austin Thompson, and Alison R. Levine. The SEC’s investigation into Focused Wealth was conducted by Bennett Ellenbogen and Michael Paley. Each of these matters was supervised by Thomas P. Smith, Jr. of the New York Regional Office. The SEC’s investigation into Invesco was conducted by Melanie Good, Craig Welter, and Nikolay Vydashenko, and supervised by Corey Schuster of the Enforcement Division’s Asset Management Unit. The SEC’s investigation into Glazer was conducted by Anne Hancock, Samantha Martin, and Christopher Rogers, and supervised by B. David Fraser of the Fort Worth Regional Office. The investigation into Regions was conducted by Katie D. Krysan and Amy S. Cotter, and supervised by Paul A. Montoya of the Chicago Regional Office.