A group of alternative investment firms, including most of the leading private equity managers, are the latest targets of the U.S. Securities and Exchange Commission’s (SEC) efforts to combat financial industry firms’ use of private texting, which violates recordkeeping rules.
The SEC settled with 12 firms (nine investment advisors and three broker-dealers) — primarily firms in the alternative investment sector — which agreed to pay a combined US$63 million to resolve the regulator’s allegations that, since at least 2019, their employees used unapproved communications methods, such as private texting and other apps, for business communications that are required to be captured by their firms.
“The failures involved personnel at multiple levels of authority, including supervisors and senior managers,” the SEC alleged.
The settling firms include three Blackstone affiliates, three Carlyle Investment affiliates, along with Kohlberg Kravis Roberts & Co. LP, Apollo Capital Management LP, Charles Schwab & Co., Inc., TPG Capital Advisors LLC, and Santander US Capital Markets LLC. They agreed to penalties ranging from US$4 million for Santander to US$12 million for Blackstone.
A 12th firm, PJT Partners LP, paid a penalty of just US$600,000, which the SEC said reflected its self-reporting of violations.
In their settlements with the SEC, the firms admitted to breaching recordkeeping rules by failing to preserve electronic communications and said they have begun beefing up their compliance policies and procedures to prevent future violations.
In a release, Sanjay Wadhwa, acting director of the SEC’s enforcement division, said the recordkeeping requirements are essential to its oversight of securities markets.
“When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants,” Wadhwa said.
Since 2021, the SEC has charged dozens of firms with these sorts of violations and it has levied billions in penalties.
“In today’s actions, while holding firms responsible for their recordkeeping failures, the commission once more recognized and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation,” Wadhwa added.