SEC's $63 Million Settlement: A Deep Dive into Recordkeeping Violations

The Securities and Exchange Commission (SEC) recently reached a $63 million settlement with 12 firms for widespread and longstanding failures to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws. This article explores the key aspects of this settlement, the impact of these violations on SEC investigations, and the factors that determined the severity of penalties for each firm.



The firms involved in the settlement included prominent investment advisers and broker-dealers such as Blackstone Alternative Credit Advisors LP, Kohlberg Kravis Roberts & Co. L.P., Charles Schwab & Co., Inc., and Apollo Capital Management L.P. These firms admitted to using unapproved communication methods, known as off-channel communications, which resulted in the failure to maintain and preserve electronic communications required by securities laws.

The use of off-channel communications by these firms had a significant impact on SEC investigations. By depriving the Commission of these communications, the firms hindered the SEC's ability to access these records during its investigations, potentially compromising their response to SEC subpoenas and impeding the Commission's investor protection function.

The severity of penalties for each firm was determined by several key factors. Firms that had widespread and longstanding use of unapproved communication methods, known as off-channel communications, faced more severe penalties. For instance, Ameriprise Financial Services, LLC, Edward D. Jones & Co., L.P., LPL Financial LLC, and Raymond James & Associates, Inc. each agreed to pay a $50 million penalty, reflecting the pervasive and longstanding nature of their recordkeeping failures.

Involvement of senior management also played a role in determining the severity of penalties. When senior managers and supervisors were involved in the off-channel communications, the penalties were more severe. For example, Invesco Distributors, Inc., and Invesco Advisers, Inc. agreed to pay a combined $35 million penalty, reflecting the involvement of senior leadership in their recordkeeping failures.

Firms that self-reported their violations and cooperated with the SEC's investigations received significantly lower civil penalties. For instance, PJT Partners LP, which self-reported, agreed to pay a $600,000 penalty, compared to the other firms that paid millions in penalties. Similarly, Qatalyst Partners LP, which self-reported, self-policed, and demonstrated substantial efforts at compliance, received a no-penalty resolution.

Firms whose failures potentially hindered the SEC's investor protection function by compromising their response to SEC subpoenas faced more severe penalties. For example, Stifel, Nicolaus & Company, Inc. agreed to pay a $35 million penalty, reflecting the potential impact of their recordkeeping failures on the SEC's investigations.

In conclusion, the SEC's $63 million settlement with 12 firms highlights the importance of compliance with recordkeeping provisions of the federal securities laws. The widespread and longstanding use of unapproved communication methods by these firms had a significant impact on SEC investigations and resulted in substantial penalties. The severity of these penalties was determined by several key factors, including the extent and duration of the recordkeeping failures, the involvement of senior management, and the firms' cooperation with the SEC's investigations. As the SEC continues to enforce these provisions, firms must ensure that they maintain and preserve electronic communications in accordance with the relevant laws and regulations.