The US Securities and Exchange Commission (SEC) has intensified its crackdown on the use of private messaging apps by the financial industry, targeting a group of alternative investment firms, including several PE managers such as Blackstone, Carlyle, and KKR, for violating recordkeeping rules, according to a report by Investment Executive.
The SEC announced settlements with 12 firms, comprising nine investment advisors and three broker-dealers, many from the alternative investment sector. These firms agreed to pay a total of $63m to address allegations that their employees used unauthorised communication methods, such as private texting and other apps, for business purposes. Such practices, occurring since at least 2019, breached regulatory requirements to retain business communications.
“The failures involved personnel at multiple levels of authority, including supervisors and senior managers,” the SEC alleged.
The firms involved include affiliates of Blackstone (three), Carlyle Investment (three), KKR, Apollo, Charles Schwab, TPG Capital Advisors, and Santander US Capital Markets. Penalties ranged from $4m for Santander to $12m for Blackstone.
One firm, PJT Partners, incurred a lower penalty of $600,000, which the SEC attributed to its proactive self-reporting of violations.
As part of their settlements, the firms admitted to breaching recordkeeping rules by failing to preserve electronic communications. They have since taken steps to strengthen their compliance policies and procedures to prevent future infractions.
In a statement, Sanjay Wadhwa, Acting Director of the SEC’s enforcement division, emphasised the importance of recordkeeping requirements to the SEC’s oversight of securities markets.
“When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants,” Wadhwa said.
Since 2021, the SEC has charged numerous firms for similar violations, imposing billions of dollars in penalties.
“In today’s actions, while holding firms responsible for their recordkeeping failures, the commission once more recognised and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation,” Wadhwa added.
