NEW YORK (Reuters) – The U.S. Securities and Exchange Commission (SEC) has intensified its investigation into the use of private messaging apps by Wall Street, collecting thousands of staff messages from over a dozen major investment companies, according to four sources familiar with the matter.
In its initial crackdown on potential breaches of record-keeping rules, the SEC focused on broker dealers, resulting in more than $2 billion in fines. However, the investigation has now expanded to include investment advisers, with the regulator requesting the review of messages on personal devices or applications from the first half of 2021 that discuss business.
Several firms, including Carlyle Group, Apollo Global Management, KKR & Co, TPG, and Blackstone, have been targeted in the investigation, along with some hedge funds such as Citadel. Senior executives at these firms have provided their personal phones and devices to be copied, and messages related to business have been handed over to the SEC.
Unlike the earlier investigations into broker-dealers, where the SEC reviewed a sample of messages, the current probe involves the examination of thousands of staff messages. This escalation raises the stakes for the companies and executives involved, exposing their conduct to SEC scrutiny.
The SEC’s investigations are confidential, and the firms involved have disclosed the probe but provided no further details or comments. Government investigations do not indicate wrongdoing or necessarily lead to charges.
SEC Chair Gary Gensler has defended the scrutiny of communications, emphasizing the importance of record-keeping rules in preventing misconduct. The SEC spokesperson declined to comment on the current investigation.
Jaclyn Grodin, a lawyer not involved in the investigation, suggested that the extensive data collected by the SEC could potentially reveal compliance failures unrelated to off-channel communications record-keeping.
The SEC’s focus on record-keeping extends to issues such as private fund fees and expenses, conflicts of interest, and preferential treatment of investors.
A history of poor compliance in keeping track of staff communications has plagued Wall Street, as the use of personal messaging channels for business discussions violates requirements to record all business communications.
The SEC’s efforts to address the record-keeping issue began after JPMorgan Chase failed to provide relevant documents in a previous probe. The current investigation has ensnared major financial institutions, including Wells Fargo, Bank of America, Goldman Sachs, and Morgan Stanley.
The investigation has generated substantial fees for attorneys, as firms have hired numerous lawyers to represent both the companies and concerned executives.
The SEC’s approach to investment advisers has faced resistance from firms, who argue that their record-keeping requirements are narrower than those of broker-dealers. However, the SEC has demanded that investment advisers hand over the messages despite these objections.
Jennifer Han, the Executive Vice President and Chief Counsel of the Managed Funds Association, argued that the SEC’s expansion of rules through enforcement actions bypasses due process and sets a dangerous precedent.
(Reporting by Chris Prentice and Carolina Mandl. Editing by Michelle Price and Marguerita Choy)
Credit: The Star : Tech Feed
