The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have fined several Wall Street businesses more than $1.8 billion for record-keeping violations. The SEC case targets 16 companies, with 11 of them agreeing to pay a total of $1.1 billion. The CFTC case involves 11 banks, with fines totaling more than $710 million.
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| Wall Street Will Pay Nearly $2 Billion In Fines For Keeping Bad Records |
According to the SEC, there have been "widespread and chronic failures by corporations and their employees to record and preserve electronic communications."According to the CFTC, the 11 companies that it is taking legal action against, "failed to retain, preserve, or produce records that were needed to be preserved under CFTC recordkeeping standards, and failed to carefully supervise matters relating to their activities as CFTC registrants," are among the offenses they committed.
SEC Action's Targets
Each of these eight businesses, including five affiliates, was penalized $125 million by the SEC:
- The Barclays Capital Inc.
- Merrill Lynch, Pierce, Fenner & Smith Inc. and BofA Securities Inc.
- The Citigroup Global Markets Inc.
- Credit Suisse Securities (USA) LLC is a brokerage firm based in the United States.
- DWS Distributors Inc., DWS Investment Management Americas, Inc., and Deutsche Bank Securities Inc.
- Company LLC Goldman Sachs
- Together with Morgan Stanley Smith Barney LLC, Morgan Stanley & Co. LLC
- Together with UBS Financial Services Inc., UBS Securities LLC
In addition, Jefferies LLC and Nomura Securities International, Inc. face fines of $50 million. Cantor Fitzgerald & Co. has agreed to pay a $10 million fine.
The CFTC's Action Targets
Following are the names of the 11 companies that the CFTC is fining and the associated fines:
- Bank of America (Bank of America, N.A.; BofA Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith Incorporated, which was formerly registered as an FCM but is now registered as an introducing broker), $100 million
- $75 million, Barclays (Barclays Bank, PLC and Barclays Capital Inc.).
- $6 million Cantor Fitzgerald (Cantor Fitzgerald & Co.)
- $75 million from 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.)
- $30 million Jefferies (Jefferies Financial Services, Inc. and Jefferies LLC).
- Morgan Stanley & Co. (Morgan Stanley & Co. LLC; Morgan Stanley Capital Services LLC; Morgan Stanley Capital Group Inc.; and Morgan Stanley Bank, N.A.), $50 million Nomura (Nomura Securities International, Inc., Nomura Global Financial Products Inc., and Nomura International PLC), $75 million
- $75 million UBS (UBS AG, UBS Financial Services, Inc., and UBS Securities LLC).
It is worth noting that, while the CFTC news release claims that these 11 corporations have been fined more than $710 million, the statistics above total just $661 million.
The Problem with Text Messaging
The SEC probe "found widespread off-channel conversations." To be more specific: "Employees of the organizations often spoke about company concerns using text messaging apps on their personal smartphones from January 2018 to September 2021. In violation of federal securities laws, the businesses failed to keep or preserve the vast majority of these off-channel interactions."
According to the CFTC press release, each of the 11 organizations targeted "failed to prevent its workers, including those at senior levels, from interacting both internally and externally utilizing unauthorized communication channels, such as personal SMS, WhatsApp, or Signal." Furthermore, the CFTC claims that these businesses "usually did not record and preserve these written communications," as required.
For the banks concerned, paying the fines is far from the end of the road. According to Bloomberg, some of them, including Citigroup Inc. and Goldman Sachs Group Inc., must now retain compliance specialists to guarantee legitimate work-related conversations, including those over the phone.
