The Securities and Exchange Commission (SEC) has taken decisive action against 16 financial firms, including major players like Guggenheim and Oppenheimer.

These firms are now facing the consequences of widespread and longstanding failures in maintaining and preserving electronic communications, resulting in combined civil penalties exceeding $81 million.

The penalties highlight a troubling pattern of non-compliance with recordkeeping provisions of federal securities laws, posing a threat to the SEC’s ability to monitor and enforce compliance within the financial industry.

Firms Grapple with Off-Channel Communication Penalties

The SEC’s investigations uncovered a pervasive and longstanding practice of using unapproved communication methods, known as off-channel communications, across all 16 firms.

This included personal text messages discussing business matters and off-channel communications about investment recommendations and advice. Shockingly, these firms failed to maintain or preserve most of these communications, directly violating federal securities laws.

As a result of these violations, each firm admitted the facts outlined in their respective SEC orders and agreed to pay substantial civil penalties. Northwestern Mutual faces a $16.5 million penalty, Guggenheim $15 million, Oppenheimer $12 million, Cambridge $10 million, Key $10 million, Lincoln $8.5 million, U.S. Bancorp $8 million, and Huntington $1.25 million.

SEC’s Regulatory Scrutiny

Notably, Huntington’s penalty reflects its voluntary self-report and cooperation. The SEC charged each firm with violating recordkeeping provisions and failing to prevent and detect these violations. The lapses involved employees at various levels, including supervisors and senior managers. Beyond financial penalties, the firms were censured and ordered to cease future violations.

In addition to the significant financial penalties, the SEC mandated that each firm cease from future recordkeeping violations. Furthermore, they were ordered to retain independent compliance consultants to conduct thorough reviews of their policies and procedures, especially regarding the retention of electronic communications found on personal devices.

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