US Financial Firms Facing Penalty for Failure to Produce Employee Conversations
Multiple US-based financial firms are set to pay fines for their inability to produce discussions about company business conducted among employees. These companies have confessed that their employees used smartphone messaging apps to discuss business matters, resulting in the inability to produce these conversations, especially those involving senior-level employees. Among the accused firms are various Wells Fargo companies, which will pay a total of $549 million in fines.
Reasons behind the Penalties
US banks have been fined by both the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for their failure to produce discussions dating back to at least 2019. It was alleged that employees of these banks used personal devices to discuss official company business using apps like iMessage, WhatsApp, and Signal. The regulators, SEC and CFTC, also accused these “off-channel communications” of not being maintained or preserved by the employees.
According to the SEC, the failure to keep records of these conversations violates the recordkeeping rules of the 1934 Securities Exchange Act and similar rules from the Investment Advisers Act of 1940. The CFTC also maintains its own recordkeeping requirements, which were violated in this case.
Allocation of Fines
The Wells Fargo companies will bear the largest portion of the fines, amounting to a combined sum of $125 million, which represents almost half of the SEC’s penalties. Additionally, these companies will also pay another $75 million to settle fines imposed by the CFTC.
Gurbir S. Grewal, the enforcement director of the SEC, stated in a blog post, “Here are three takeaways for those firms who haven’t yet done so: self-report, cooperate, and remediate. If you adopt that playbook, you’ll have a better outcome than if you wait for us to come calling.”
List of Banks and their Settlements with the SEC
- Wells Fargo Securities, LLC, together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, agreed to pay a $125 million penalty
- BNP Paribas Securities Corp. and SG Americas Securities, LLC have each agreed to pay penalties of $35 million
- BMO Capital Markets Corp. and Mizuho Securities USA LLC have each agreed to pay penalties of $25 million
- Houlihan Lokey Capital, Inc. has agreed to pay a $15 million penalty
- Moelis & Company LLC and Wedbush Securities Inc. have each agreed to pay penalties of $10 million
- SMBC Nikko Securities America, Inc. has agreed to pay a $9 million penalty
List of Banks and their Settlements with the CFTC
- BNP Paribas (BNP Paribas S.A. and BNP Paribas Securities Corp.): $75 million
- Société Générale (Société Générale SA and SG Americas Securities, LLC): $75 million
- Wells Fargo (Wells Fargo Bank NA and Wells Fargo Securities LLC): $75 million
- Bank of Montreal (Bank of Montreal): $35 million
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