The U.S. Securities and Exchange Commission (SEC) has announced charges against 26 broker-dealers, investment advisers, and dually-registered entities for failing to maintain and preserve electronic communications in accordance with federal securities laws. These firms have admitted to the facts outlined in the SEC orders, acknowledged violations of recordkeeping provisions, and agreed to pay a combined total of $392.75 million in civil penalties.

The SEC's investigation uncovered widespread and persistent usage of unapproved communication methods, known as off-channel communications, at these firms. The orders issued by the SEC reveal that during the relevant periods, employees at these firms sent and received off-channel communications that were required to be preserved under securities laws. The lack of preservation of these records hinders the SEC's ability to access them during investigations. The failures were attributed to personnel at various levels of authority, including supervisors and senior managers.

Each of the charged entities violated certain recordkeeping provisions of the Securities Exchange Act, the Investment Advisers Act, or both. Additionally, each firm was found to have failed in reasonably supervising their personnel to prevent and detect these violations.

As part of the enforcement actions, each firm has been ordered to cease and desist from future violations of the relevant recordkeeping provisions and has been censured. Notably, three of these firms self-reported their violations prior to the SEC's investigation, resulting in significantly lower civil penalties compared to what they would have otherwise faced.

Gurbir S. Grewal, Director of the SEC's Division of Enforcement, emphasized the commission's commitment to ensuring compliance with securities laws recordkeeping requirements. He highlighted that these measures are crucial for investor protection and maintaining well-functioning markets. Furthermore, Grewal commended those firms that self-reported their violations, demonstrating the benefits of proactive cooperation with regulatory authorities.

The SEC's enforcement actions serve as a reminder of the importance of adhering to recordkeeping provisions under federal securities laws. These measures aim to safeguard investor interests and promote transparency in financial markets. The significant financial penalties imposed on these firms underscore the consequences of non-compliance with these regulations.

As these firms move forward, they have begun implementing improvements to their compliance policies and procedures to address these violations. The self-reporting of violations by some firms also highlights the value of proactive cooperation with regulatory authorities in mitigating penalties and fostering a culture of compliance within financial institutions.