United States SEC Probes Top Hedge Funds Messaging & Whatsapp Records, Started Probe on Top Private Equity Firms in November 2022 with Financial Institutions Fined $1.8 Billion in September 2022
3rd February 2023 | Hong Kong
The United States Securities & Exchange Commission (SEC) has started probing top hedge funds messaging & whatsapp records, with probe on top private equity firms already started in November 2022 and top financial institutions fined $1.8 billion in September 2022 for using text messaging & non-authorised channels with no proper record-keeping. In September 2022, the United States Securities & Exchange Commission (SEC) fined 11 firms $1.1 billion for using text messaging & non-authorised channels with no proper record-keeping (8 firms were fined $125 million each (Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, Bank of America, Deutsche Bank, Barclays). Nomura & Jefferies were fined $50 million each and Cantor Fitzgerald was fined $10 million). The United States Commodity Futures Trading Commission (CFTC) also fined 11 firms $700 million for using text messaging & non-authorised channels with no proper record-keeping (The 11 firms are Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, Bank of America, Deutsche Bank, Barclays, Nomura & Jefferies). In January 2023, Morgan Stanley self-fined its bankers thousands to more than $1 million (for 1 senior banker) for conducting business on messaging platforms including Whatsapp despite prior warnings
“ United States SEC Probes Top Hedge Funds Messaging & Whatsapp Records, Started Probe on Top Private Equity Firms in November 2022 with Financial Institutions Fined $1.8 Billion in September 2022 “
Morgan Stanley Self-Fines Bankers Thousands to More than $1 Million for Conducting Business on Whatsapp Despite Prior Warnings, Fined $200 Million in 2022 September by United States Authorities
26th January 2023 – Morgan Stanley has self-fined its bankers thousands to more than $1 million (for 1 senior banker) for conducting business on messaging platforms including Whatsapp despite prior warnings (Source: Financial Times). In September 2022, Morgan Stanley was fined $200 million in total, and was among 11 firms fined by United States Commodity Futures Trading Commission (CFTC) for $710 million and United States Securities & Exchange Commission (SEC) for $1.1 billion for using text messaging & non-authorised channels with no proper record-keeping. See below for more info.
United States SEC Fines 11 Firms $1.1 Billion for Using Text Messaging & Non-Authorised Channels with No Record Keeping, Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, BOA, Deutsche Bank, Barclays, Nomura, Jefferies & Cantor Fitzgerald
29th September 2022 – The United States Securities & Exchange Commission (SEC) has fined 11 firms $1.1 billion for using text messaging & non-authorised channels with no proper record-keeping. 8 firms were fined $125 million each (Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, Bank of America, Deutsche Bank, Barclays). Nomura & Jefferies were fined $50 million each and Cantor Fitzgerald was fined $10 million. United States SEC: The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters … … The SEC staff’s investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms’ personnel. These personnel included senior and junior investment bankers and debt and equity traders. From January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messaging applications on their personal devices. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. SEC Chair Gary Gensler: “ Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust. Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”
United States SEC
SEC Charges 16 Wall Street Firms with Widespread Recordkeeping Failures
- Firms admit to wrongdoing and agree to pay penalties totaling more than $1.1 billion
The Securities and Exchange Commission today announced charges against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters.
- The following eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
- Barclays Capital Inc.;
- BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
- Citigroup Global Markets Inc.;
- Credit Suisse Securities (USA) LLC;
- Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
- Goldman Sachs & Co. LLC;
- Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
- UBS Securities LLC together with UBS Financial Services Inc.
- The following two firms have agreed to pay penalties of $50 million each:
- Jefferies LLC; and
- Nomura Securities International, Inc.
- Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.
“Finance, ultimately, depends on trust. By failing to honor their recordkeeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” said SEC Chair Gary Gensler. “Since the 1930s, such recordkeeping has been vital to preserve market integrity. As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications. As part of our examinations and enforcement work, we will continue to ensure compliance with these laws.”
The SEC staff’s investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms’ personnel. These personnel included senior and junior investment bankers and debt and equity traders.
From January 2018 through September 2021, the firms’ employees routinely communicated about business matters using text messaging applications on their personal devices. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records relating to their businesses, the firms’ actions likely deprived the Commission of these off-channel communications in various Commission investigations. The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives.
“Today’s actions – both in terms of the firms involved and the size of the penalties ordered – underscore the importance of recordkeeping requirements: they’re sacrosanct. If there are allegations of wrongdoing or misconduct, we must be able to examine a firm’s books and records to determine what happened,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “These 16 firms not only have admitted the facts and acknowledged that their conduct violated these very important requirements, but have also started to implement measures to prevent future violations. Other broker dealers and asset managers who are subject to similar requirements under the federal securities laws would be well-served to self-report and self-remediate any deficiencies.”
“These actions deliver a straightforward message to registrants: You are expected to abide by the Commission’s recordkeeping rules,” said Sanjay Wadhwa, Deputy Director of Enforcement. “The time is now to bolster your record retention processes and to fix issues that could result in similar future misconduct by firm personnel. In line with this first-of-its-kind group resolution and our December 2021 settlement with J.P. Morgan Securities LLC, the staff will continue its efforts to enforce compliance with the Commission’s essential recordkeeping requirements.”
Each of the 15 broker-dealers was charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing reasonably to supervise with a view to preventing and detecting those violations. DWS Investment Management Americas, Inc., the investment adviser, was charged with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and were censured. 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 employees with those policies and procedures.
Separately, the Commodity Futures Trading Commission announced settlements with the firms for related conduct.
The SEC’s investigation, which is ongoing, is being conducted by Zachary Sturges and Karen Willenken of the New York Regional Office, Ian Rupell of the SEC’s Headquarters, and HelenAnne Listerman and Jessica Neiterman of the Asset Management Unit. The case is being supervised by Thomas P. Smith Jr., Osman Nawaz, Carolyn Welshhans, Corey Schuster, and Laura Josephs.
United States Commodity Futures Trading Commission Fines 11 Firms $710 Million for Using Text Messaging & Non-Authorised Channels with No Record Keeping, Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, BOA, Deutsche Bank, Barclays, Nomura, Jefferies & Cantor Fitzgerald
29th September 2022 – The United States Commodity Futures Trading Commission (CFTC) has fined 11 firms $700 million for using text messaging & non-authorised channels with no proper record-keeping. The 11 firms are Citi, UBS, Credit Suisse, Goldman Sachs, Morgan Stanley, Bank of America, Deutsche Bank, Barclays, Nomura & Jefferies. United States CFTC: “Each order finds that the swap dealer and/or FCM in question, for a period of years, failed to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal. The firms were required to keep certain of these written communications because they related to the firms’ businesses as CFTC registrants. The firms generally did not maintain and preserve these written communications, and therefore could not provide them promptly to the CFTC when requested.” See full statement below
United States CFTC
The Commodity Futures Trading Commission today issued orders simultaneously filing and settling charges against swap dealer and futures commission merchant (FCM) affiliates of 11 financial institutions for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.
The settling registrants admit the facts detailed in the orders (with Bank of America and Nomura neither admitting nor denying certain specific findings of the Division of the Enforcement’s (DOE) investigation), are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings.
The settling swap dealers and FCMs and their civil monetary penalties are:
- Bank of America (Bank of America, N.A.; BofA Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith Incorporated (which was registered as an FCM until May 2019 and is currently registered as an introducing broker)), $100 million
- Barclays (Barclays Bank, PLC and Barclays Capital Inc.), $75 million
- Cantor Fitzgerald (Cantor Fitzgerald & Co.), $6 million
- Citi (Citibank, N.A.; Citigroup Energy Inc.; and Citigroup Global Markets Inc.), $75 million
- Credit Suisse (Credit Suisse International and Credit Suisse Securities (USA) LLC), $75 million
- Deutsche Bank (Deutsche Bank AG and Deutsche Bank Securities Inc.), $75 million
- Goldman Sachs (Goldman Sachs & Co. LLC f/k/a Goldman Sachs & Co.), $75 million
- Jefferies (Jefferies Financial Services, Inc. and Jefferies LLC), $30 million
- Morgan Stanley (Morgan Stanley & Co. LLC; Morgan Stanley Capital Services LLC; Morgan Stanley Capital Group Inc.; and Morgan Stanley Bank, N.A.), $75 million
- Nomura (Nomura Global Financial Products Inc.; Nomura Securities International, Inc.; and Nomura International PLC), $50 million
- UBS (UBS AG; UBS Financial Services, Inc.; and UBS Securities LLC), $75 million
“The Commission’s recordkeeping and supervision requirements ensure the safety and integrity of the U.S. derivatives markets and protect customers and market participants,” said Chairman Rostin Behnam. “As demonstrated today, the Commission will vigorously pursue registrants who fail to comply with their core regulatory obligations and hold them accountable.”
“Recordkeeping requirements are key to the Commission’s oversight of registrants and a registrant’s disregard of its obligations threatens the Commission’s ability to effectively and efficiently conduct examinations and investigations,” said Acting Director of Enforcement Gretchen Lowe. “The Commission continues to focus on the importance of recordkeeping, supervision and other regulatory obligations. Registrants and other market participants subject to the federal commodities laws and regulations are encouraged to examine their own internal controls and supervision to ensure they are in compliance.”
Each order finds that the swap dealer and/or FCM in question, for a period of years, failed to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal. The firms were required to keep certain of these written communications because they related to the firms’ businesses as CFTC registrants. The firms generally did not maintain and preserve these written communications, and therefore could not provide them promptly to the CFTC when requested.
Each order further finds the widespread use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.
Case Background
The orders find, with respect to several of the registrants, that DOE became aware during investigations into certain trading at the institutions that the institutions’ traders had been using unapproved communication methods on their personal devices for business-related communications. Following a review, each firm acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.
As a result of each registrant’s failure to ensure that its employees—including supervisors and senior-level employees—complied with communications policies and procedures, each registrant failed to maintain hundreds if not thousands of business-related communications, including communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.
Related Civil Action
The Securities and Exchange Commission (SEC) today announced entry of orders filing and settling charges against several financial institutions and imposing civil monetary penalties for related recordkeeping and supervision violations.
The DOE staff members responsible for these actions are James Wheaton, Devin Cain, Jack Murphy, Benjamin J. Rankin, Jake Mermelstein, Trevor Kokal, (and former staff members Candice Aloisi, Gabriella Geanuleas, and Gates Hurand); Alejandra de Urioste, R. Stephen Painter, Jr., Lenel Hickson, Jr, and Manal M. Sultan.
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