The US securities regulator has collected 1000’s of staff messages from greater than a dozen major investment corporations, escalating its probe into Wall Street’s use of personal messaging apps, said 4 individuals with direct knowledge of the matter.
Previously, the Securities and Exchange Commission had asked the businesses to internally review the messages in its investigation of Wall Street’s use of WhatsApp, Signal and other unapproved messaging apps to debate work.
The 2-year crackdown into potential breaches of record-keeping rules initially targeted broker dealers, netting regulators over $2 billion in fines.
While Reuters and other media have reported that the SEC’s “off-channel” communication probe has expanded to investment advisers, its move to review 1000’s of their staff messages has not previously been reported.
It marks an escalation of the investigation and raises the stakes for the businesses and the executives concerned by exposing their conduct to SEC scrutiny.
“It increases risk,” one source said. “The more information you give the SEC, the more you fuel the beast.”
The 2-year crackdown into potential breaches of record-keeping rules initially targeted broker dealers, netting regulators over $2 billion in fines.REUTERS
In the newest phase of the probe of greater than a dozen investment advisers, the SEC has in recent months asked for messages on personal devices or applications through the first half of 2021 that debate business, the sources said.
It has targeted a number of employees, in some cases as many as a dozen, including senior executives.
The firms include Carlyle Group, Apollo Global Management, KKR, TPG, and Blackstone, in line with three individuals with direct knowledge of the matter, in addition to some hedge funds, including Citadel, said a unique person with direct knowledge.
The Securities and Exchange Commission had asked the businesses to internally review the messages in its investigation of Wall Street’s use of WhatsApp, Signal and other unapproved messaging apps to debate work.Shutterstock
The executives gave their personal phones and other devices to their employers or lawyers to be copied, and messages discussing business have been handed to the SEC, three people said.
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That is in contrast to the broker-dealer probes.
In those cases, the SEC asked corporations to review staff messages and report back to the agency what number of discussed work.
SEC staff reviewed only a sample of messages themselves, in line with three sources with knowledge of the previous investigations.
The sources spoke on the condition of anonymity because SEC investigations are confidential.
At the least 16 firms including Carlyle, Apollo, KKR, TPG, and Blackstone, have disclosed that the SEC is probing their communications.
The firms didn’t provide further details and didn’t comment for this story. A spokesperson for Citadel declined to comment.
Government investigations aren’t evidence of wrongdoing and don’t necessarily result in charges.
In the newest phase of the probe, the SEC has in recent months asked for messages on personal devices or applications through the first half of 2021 that debate business, sources said.REUTERS
An SEC spokesperson declined to comment.
Chair Gary Gensler has defended the communications scrutiny, saying record-keeping rules are critical in helping the SEC guard against wrongdoing.
“Now that they’ve all that data — it is vitally possible that the SEC will find compliance failures in there somewhere that don’t have anything to do with the off-channel communications record-keeping issues,” said Jaclyn Grodin, a lawyer at Goulston & Storrs who just isn’t involved within the investigation.
SEC Chair Gary Gensler has defended the communications scrutiny, saying record-keeping rules are critical in helping the SEC guard against wrongdoing.Michael Brochstein/Sipa USA
Private fund fees and expenses, conflicts of interest and preferential treatment of investors are issues the SEC is increasingly specializing in, she noted.
‘Shooting fish’
The issue of keeping tabs on staff communications has dogged Wall Street compliance departments for years.
Because corporations don’t surveil personal messaging channels, using them to debate business puts SEC-regulated employers in breach of necessities to record all business communications.
The SEC began to home in on Wall Street’s record-keeping problem when JPMorgan Chase failed to supply documents from no less than 2018 pertaining to an unrelated probe, in line with a 2021 settlement by which the bank agreed to pay the SEC $125 million to resolve charges over record-keeping lapses.
Suspecting that off-channel chat about deals, trades and other business was rife on Wall Street, the SEC in 2021 opened an inquiry into other broker-dealers’ communications, said two sources.
The misconduct proved so pervasive that the agency has been “shooting fish in a barrel,” one said.
The probe is shaping as much as be Gensler’s signature Wall Street enforcement initiative, netting multiple big names including Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley.
It has generated hundreds of thousands in fees for attorneys, with firms hiring dozens of lawyers to represent each the corporate and executives anxious about their exposure, in line with several sources.
The probe is shaping as much as be Gensler’s signature Wall Street enforcement initiative, netting multiple big names including Wells Fargo, Bank of America, Goldman Sachs and Morgan Stanley.Reuters
‘Invasive’
The SEC began approaching investment advisers in October 2022, Reuters previously reported.
As with broker-dealers, the SEC initially sought details on investment advisers’ record-keeping policies.
It then identified a bunch of executives and asked the firms to go looking their devices and report back on what they found.
However the firms resisted, arguing their record-keeping requirements are narrower than broker-dealers’.
In a January letter led by the Managed Funds Association, the industry said the SEC’s request was “invasive” and raised privacy issues. Bloomberg previously reported the letter.
The SEC later demanded that the investment advisers hand over the messages, the sources said.
The agency is ignoring essential differences in investment advisers’ recordkeeping requirements, said Jennifer Han, the MFA’s executive vp and chief counsel.
“Unilaterally expanding the principles by enforcement actions sidesteps due process and creates a dangerous precedent,” she said in an announcement.
