Home » Blogs » SEC Fines Wall Street Firms $289M for ‘Off-Channel’ Recordkeeping
August 15, 2023

The Securities and Exchange Commission charged 11 Wall Street firms with failures to maintain and preserve electronic communications. The firms, including Wells Fargo Securities ($125M) and BNP Paribas Securities ($38M), admitted the facts and acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreeing to pay combined penalties of $289 million and improve their compliance policies and procedures to address the violations.

This is something we talk about with our clients daily,” said Matt Rasmussen, founder and CEO of smartphone data discovery leader ModeOne. “Corporate business communications don’t just happen via email anymore—off-channel smartphone communications are easily one of the hottest topics in the industry, and companies that ignore this communication source risk being hit with heavy financial penalties,” said Rasmussen.

Off-channel recordkeeping in the financial services industry is not new. The SEC’s actions against the 11 firms to comply with the books and records requirements of the federal securities laws follow previous findings by the SEC and the Commodity Futures Trading Commission approximately one year ago, when they fined 16 Wall Street firms $1.8 billion for using private texting apps for business and not saving the messages. Some executives even lied about such communication and deleted messages.

Gurbir S. Grewal, Director of the SEC’s Division of Enforcement, said there are three takeaways for firms in violation of Rule 17a-4 under the Exchange Act and Rule 204-2 under the Advisers Act, specifying the manner and length of time that the records must be maintained and produced: “self-report, cooperate and remediate.” If firms adopt that playbook, they will “have a better outcome” than if they wait for the SEC to come calling, said Grewal.

Social Media in the Workplace

With the proliferation of smartphones, messaging apps, and social media platforms, people communicate in various ways at home and in the workplace. And with the love of technology by the largest generation in the workforce, Millennials, with the almost ubiquitous use of social media in their personal lives, it stands to reason that usage would creep into their business communications. But the problem is not limited to the regulated financial services industry.

Social media has created unique challenges for legal professionals who must gather and analyze electronic evidence as part of corporate investigations and litigation. Businesses rely on messaging apps such as Slack, Microsoft Teams, and WhatsApp for real-time communication, collaboration, and file sharing. Such applications became critical when companies shifted to remote work and online sales over the past few years. Organizations or teams subscribe to collaboration and communication tools to increase efficiencies, and they often use what they know, such as Instagram and X (formerly Twitter).

Bring-your-own-device (BYOD) policies exacerbate the unapproved usage of social media apps. It means that more relevant data is only stored on employees’ mobile devices and intermixed with personal and private information. These challenges make meeting recordkeeping requirements in any business very difficult if not impossible. Even if employees cooperate, corporations, their outside law firms, and litigation services providers must be able to collect data from smartphones while adhering to privacy regulations, employers’ privacy guidelines, and employees’ privacy preferences.

ModeOne’s game-changing technology addresses the smartphone issue to help companies minimize or avoid fines, mitigate the risks of social media communications, and facilitate smartphone data collection. The company’s patented SaaS framework offers remote, same-day collection of targeted data, anywhere in the world, from Apple iOS and Android mobile devices for evidentiary, compliance, and investigation purposes. And we continuously update our software to accommodate data collection from new devices, evolving mobile device operating systems, and social media platforms.