SEC Fines Firms For Use Of Unauthorized Communication Methods

The SEC has fined 12 registered investment advisors and broker-dealers, including Charles Schwab, a total of $63 million for failing to properly record and preserve employee messages sent through unauthorized communication channels.

The fines range from $600,000 to $12 million, with PJT Partners receiving the lowest penalty due to self-reporting its violations. PJT and its representatives did not respond to requests for comment.

This enforcement action is part of the SEC’s ongoing effort to address wealth management firms’ use of unauthorized communication methods. The initiative has resulted in billions of dollars in fines against major Wall Street firms. SEC officials emphasize the importance of documenting communications to ensure transparency and uphold regulatory integrity.

Sanjay Wadhwa, acting director of the SEC’s Enforcement Division, stated, “Effective oversight relies heavily on registrants adhering to the federal securities laws’ books and records requirements. Failures in this area undermine transparency and the integrity of markets and participants.”

While it is unclear whether the crackdown will persist under the next administration, the SEC has consistently highlighted the issue’s significance, as undocumented communications hinder regulators’ ability to monitor firms effectively.

All firms involved in the latest enforcement action admitted to violations when settling the allegations. The largest penalty, $12 million, was imposed on three Blackstone entities: Blackstone Alternative Credit Advisors, Blackstone Management Partners, and Blackstone Real Estate Advisors. The SEC found that Blackstone employees used unapproved platforms to send client-related messages, the majority of which were not preserved.

Blackstone issued a statement saying, “We are pleased to have resolved this matter. We have implemented significant enhancements to our electronic communication procedures and remain committed to the highest compliance standards.”

KKR, another private-equity and investment firm, received an $11 million fine for its employees’ use of unauthorized messaging platforms like WhatsApp for business-related communication. KKR declined to comment on the settlement.

Charles Schwab was fined $10 million, the third-largest penalty, for failing to record text messages and for employees’ use of platforms like LinkedIn and Facebook Messenger. Schwab responded, “We are pleased to resolve this immaterial matter and remain focused on delivering exceptional service to our clients.”

Additional penalties include:

Apollo Capital Management, fined $8.5 million;

Carlyle Investment Management, Carlyle Global Credit Investment Management, and AlpInvest Partners, fined $8.5 million collectively;

TPG Capital Advisors, fined $8.5 million;

Santander US Capital Markets, fined $4 million.

Apollo, Carlyle, and TPG declined to comment. Santander stated its commitment to compliance, saying, “We have cooperated extensively with the SEC in their review of this matter and have made considerable enhancements to our policies and procedures. We are pleased to have this matter resolved.”

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