The SEC is said to be examining a vast number of private messages obtained from messaging platforms like WhatsApp and Signal as part of its investigation into Wall Street record-keeping practices.
The U.S. securities regulatory authority has gathered numerous employee messages from over a dozen prominent investment firms, intensifying its inquiry into how Wall Street utilizes private messaging applications. According to Reuters, the SEC is currently investigating over a dozen investment advisors and has recently requested messages related to business discussions from personal devices or applications during the first half of 2021.
The firms under scrutiny encompass Carlyle Group, Apollo Global Management, KKR & Co, TPG, and Blackstone, in addition to hedge funds like Citadel. In each company, the investigation has purportedly focused on specific employees, sometimes including up to a dozen individuals, including high-ranking executives.
The ongoing two-year effort to investigate possible violations of record-keeping regulations initially focused on broker-dealers, resulting in regulators collecting fines exceeding $2 billion.
As per earlier reports, in October 2022, the investigation broadened its scope to encompass investment advisors. Initially, the SEC requested companies to conduct searches on the devices of a specific group of executives and provide the findings.
Wall Street firms typically do not monitor their employees’ personal messaging platforms. As a result, when these platforms are utilized for business discussions, companies may find themselves in violation of the obligation to record all business communications.
The SEC’s direct examination of these messages poses the risk that the companies under investigation might uncover compliance deficiencies that are unrelated to the issues regarding off-channel communication record-keeping.
The SEC is placing growing emphasis on matters such as private fund fees, expenses, conflicts of interest, and the preferential treatment of investors.
The SEC’s focus on Wall Street’s record-keeping issue began when JPMorgan Chase failed to provide documents related to an unrelated investigation in 2018, resulting in a $125 million settlement with the SEC in 2021. This prompted the SEC to launch an inquiry into the off-channel conversations about deals and trades within other broker-dealers’ communications in 2021. The extent of misconduct in this area has been so widespread that it has been relatively easy for the agency to uncover violations.
(Source: Chris Prentice | Carolina Mandl | Michelle Price | Marguerita Choy | Reuters | Matthew Broersma | Silicon)
