An SEC off-channel communications case hitting Interactive Brokers, Baird and other firms with nearly $80 million shows the benefits firms can receive from cooperating in enforcement actions.
Of the six firms and their affiliates named in the Securities and Exchange Commission's sweeping allegations of
Its fine — $2.5 million — was far smaller than those imposed on any other firm. For instance, Interactive Brokers, whose services are often used for online trading, was hit with a $35 million fine for similar violations.
"One of the orders included in today's announced actions is not like the others," Gurbir Grewal, the director of the SEC's division of enforcement, said in a statement. "There are real benefits to self-reporting, remediating and cooperating."
Taylor Reinhardt, a spokesman for Perella Weinberg, declined to comment. Besides Interactive Brokers and one of its affiliates, the other firms caught up in the SEC's sweep were:
- Milwaukee-based Robert W. Baird, which has to pay a $15 million penalty;
- Chicago-based William Blair & Company and an affiliate, which are paying $10 million;
- Chicago-based Nuveen Securities, which is paying $8.5 million; and
- Cincinnati-based Fifth Third Securities, which is paying $8 million.
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All the firms admitted that their employees had been using messaging services like WhatsApp and GroupMe, which send encrypted communications, to discuss investing advice since at least 2019. SEC regulations require firms to keep records of all messages making investment recommendations.
The federal regulator said the violations were committed as high up in some firms as the supervisor and senior manager level. The SEC found the brokerages' failures to maintain a proper paper trail violated recordkeeping provisions of the Securities and Exchange Act of 1934 and, in some cases, the Investment Advisers Act of 1940.
The SEC's release on Perella Weinberg details the steps that the firm took to aid in its investigation. The SEC said Perella Weinberg brought its own recordkeeping failures to regulators' attention in June 2023.
"After identifying off-channel communications, Respondents conducted an internal investigation and self-reported the facts to Commission staff," the SEC wrote.
Michael Edmiston, a securities lawyer at Jonathan W. Evans & Associates in Studio City, California, said, "We've seen particularly in the past 10 or 15 years that the self-reporting of errors and mistakes and wrongdoing has a significant effect on the mitigation of any sort of economic penalties that may be leveled by securities regulators."
Edmiston said he has seen many cases alleging investor harm that have depended mainly on a firm's ability to produce old messages offering investment advice.
"Quite often, that can turn a case in the claimant's favor," he said.
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Representatives of most of the firms declined to comment. A spokesperson for Nuveen said in an email, "We are pleased to have resolved this matter." A Baird spokesperson said via email, "While we are obviously disappointed with the findings, we have made enhancements to our compliance procedures in recent years related to this issue and we are pleased to have resolved the matter."
Although the SEC's recordkeeping requirements have been around for decades, the Wall Street regulator has set a priority only recently on preventing firm employees from using encrypted messaging services to discuss business. In August, it hit
In September,
Besides paying penalties, the firms in the SEC's latest sweep agreed to retain independent consultants to review their internal policies and procedures on record retention and electronic communications.
