Today's Paper Latest Public Notices Elections Core Values Newsletters Sports Archive Obits Puzzles Opinion Story Ideas
ADVERTISEMENT
ADVERTISEMENT

Firms fined $1.8B over employee texts

by COMPILED BY DEMOCRAT-GAZETTE STAFF FROM WIRE REPORTS | September 29, 2022 at 1:53 a.m.

U.S. securities regulators have imposed nearly $2 billion in fines on more than a dozen financial firms, including eight major Wall Street banks, for failing to police employees who routinely used messaging apps and other "off-channel" services on personal phones to communicate business matters.

The Securities and Exchange Commission announced the charges late Tuesday after a monthslong investigation found that Wall Street firms did not monitor how employees were communicating work-related matters or did not keep records of those messages, as required by federal law.

The large banks that admitted wrongdoing and settled with the regulator include Bank of America Corp., Barclays PLC, Citigroup Inc., The Goldman Sachs Group Inc. and Morgan Stanley. Each will pay $125 million to the SEC.

The regulator imposed fines totaling $1.1 billion on 16 firms, including five affiliates of the large banks.

The Commodity Futures Trading Commission imposed an additional $710 million in fines on 11 financial firms, some of which were also charged by the SEC. The biggest banks agreed to each pay $75 million to the trading commission.

Regulators reached a similar $200 million resolution with JPMorgan Chase & Co. earlier this summer.

At the time, the SEC officials noted that the bank's failure to stop employees from using text messages on personal phones to communicate business could have an impact on investigations and monitoring of bank activities. It indicated that similar settlements with other banks were likely.

"As technology changes, it's even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications," said SEC Chair Gary Gensler.

Regulators found that from 2018-2021, bank employees frequently used WhatsApp and other text messaging services to chat with one another and people outside of the bank instead of using their work emails or other official forms of communication.

It is standard practice for banks to preserve communications on official emails, but it becomes more challenging to do so when the back-and-forth takes place on private messaging services.

At Goldman, the SEC found that dozens of managing directors and employees who were responsible for supervising junior workers had routinely used so-called off-channel text messaging services on their personal devices.

Serious penalties for failing to maintain proper records have generally been rare.

Before the JPMorgan case this summer, the last major SEC fine for such conduct was just $15 million against Morgan Stanley in 2006, for failing to produce emails during investigations on initial public offerings and research produced by analysts.

Representatives of Barclays, Bank of America, Goldman Sachs and Morgan Stanley declined to comment. A Citi spokeswoman said officials at the bank were pleased to put the matter to rest.

The regulatory agencies fined the Wall Street banks just days before the end of the agencies' fiscal year. It's not uncommon for regulators to announce big-dollar settlements in the waning days of September so those results can be included in the full-year tally of enforcement actions.

The SEC said the firms had also agreed to bring on compliance consultants to review policies and procedures "relating to the retention of electronic communications found on personal devices."

Authorities didn't name anyone in the settlements. And a person close to one of the largest banks said investigators didn't necessarily specify to companies which employees were described.

Two executives close to the banks said that some of the people described as employees are no longer employed and that people who left didn't necessarily go because of the probe.

At Bank of America, which disclosed the most in penalties Tuesday, one head of a trading desk -- who resigned this year -- told brokers at other firms to delete messages they had exchanged on personal devices and to switch to Signal, which is encrypted, according to the Commodity Futures Trading Commission.

Here are some of the other executives singled out with major investment banks for breaking the record-keeping rules, according to SEC settlement documents.

Barclays: A managing director in the investment bank exchanged thousands of business-related messages. And the head of a fixed-income trading desk texted with more than 29 colleagues, as well as people at other firms.

Citigroup: A now-former managing director with a global role in the investment bank sent and received thousands of messages. And the head of a fixed-income trading desk texted with more than 70 colleagues.

Jefferies Financial Group Inc.: A managing director in a global leadership role exchanged thousands of messages with colleagues, investment banking clients and staff at other financial services firms. Another managing director and trading desk head texted with at least 90 colleagues using messaging platforms including WhatsApp and Signal.

Morgan Stanley: A managing director with a U.S.-wide role in the institutional securities business sent and received more than 1,400 messages. And an associate on a derivatives trading desk exchanged more than 2,500 messages with colleagues.

UBS Group: Three managing directors sent or received more than 1,000 messages with one another, other managing directors and employees under their supervision. One of those three and another executive communicated with personnel whose responsibilities included ensuring UBS's compliance with the law.

Information for this article was contributed by Matthew Goldstein and Emily Flitter of The New York Times, as well as Hannah Levitt, Jenny Surane and Katherine Doherty of Bloomberg News (WPNS).

Print Headline: Firms fined $1.8B over employee texts

ADVERTISEMENT

Sponsor Content

ADVERTISEMENT
ADVERTISEMENT