Dive Brief:

• Charles Schwab, KKR, Blackstone, Apollo and Carlyle are among a group of investment advisory and brokerage firms that were caught letting their employees use off-channel communications like What’sApp to discuss business in violation of federal recordkeeping rules, the Securities and Exchange Commission said.
• “When firms fall short of [their recordkeeping] obligations, the consequences go far beyond deficient document productions,” Sanjay Wadhwa, the SEC’s acting enforcement chief, said in a Jan. 13 statement. “Such failures implicate the transparency and the integrity of the markets and their participants.”
• The agency fined nine investment advisers and three broker-dealers a total of $63 million for violating federal securities laws. 

Dive Insight:

This latest action comes as part of a risk-based initiative the agency launched in 2021 to identify companies that allow their employees to use personal email or text messaging on personal devices, among other things, that make it easy for them to communicate outside of channels subject to recordkeeping controls. The agency has since investigated some 60 companies and imposed fines of almost $3 billion.

Under its risk-based initiative, the agency uses data analytics to identify enforcement leads of companies whose practices could be violating finance or disclosure rules.  

Three Blackstone companies are among those identified this week. They’ll pay a combined $12 million fine. In one case, a senior managing director at Blackstone Alternative Credit Advisors exchanged messages with multiple colleagues on an unapproved platform concerning proposed investment advice for a client, the agency said. 

“The Blackstone Advisers failed to implement systems reasonably expected to determine whether personnel were following the policies and procedures regarding electronic communications” and “failed to implement sufficient monitoring to ensure that their recordkeeping and communications policies were being followed,” the SEC said in its order for the three companies. 

Blackstone didn’t immediately respond to a request for comment but in a statement to The Wall Street Journal, a spokesperson said the company is glad to put the matter behind them. “We have already taken significant steps to further strengthen our electronic communications procedures — including before the start of this inquiry — and are committed to the highest standard of compliance,” the spokesperson told the Journal. 

Other companies subject to SEC orders and fines are Kohlberg Kravis Roberts, $11 million; Charles Schwab & Co., $10 million; Apollo Capital Management, $8.5 million; TPG Capital Advisors, $8.5 million; and Santander US Capital Markets, $4 million. 

Carlyle Investment Management, Carlyle Global Credit Investment Management and AlpInvest Partners were fined $8.5 million together. 

The SEC singled out PJT Partners for making changes and coming forward on its own after it conducted an investigation and saw it wasn’t complying with the rules. 

“Prior to approaching Commission staff, PJT Partners had already increased compliance efforts, which included testing and implementing an application on employee devices to help keep messaging on-channel and increasing the frequency of electronic communications training for employees,” the agency said in its order. “PJT Partners also implemented a process for employees to easily onboard and preserve any off-channel communications that had already taken place.”

The SEC fined the company $600,000, a lower amount than it otherwise would have, said Wadhwa. “There are tangible benefits to be gained from proactive cooperation,” he said.