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SEC Settles with 11 Firms Based on Admissions and Penalties

SEC Settles with 11 Firms Based on Admissions and Penalties

T. GormanPosted on August 10, 2023 Posted in SECActions

One of the hallmarks of Enforcement in recent months has been the reach of the program. While the agency continues to bring cases in traditional areas such as offering frauds and insider trading, in recent periods it has also focused on filing a wide variety of cases in areas not typically reached by the enforcement program. This approach helps create a kind of ubiquitous presence for the agency in the markets which can increase the effectiveness of the program.

A good example of this approach is the eleven cases recently filed. Each case names as respondent a broker-dealer and, in one case an investment adviser. Each case is based on a failure to maintain electronic communications over time. To resolve each case each respondent admitted the charges, agreed to the appointment of a consultant and to implement certain remedial steps and paid a penalty. The case against Wedbush Securities typical. In the Matter of Wedbush Securities Inc., Adm. Proc. File No. 3-21550 (August 8, 2023).

The Order begins with the basic record keeping requirements at issue, Exchange Act Section 17(a)(1) and Advisers Act Section 204. Together these Sections authorize the Commission to issue rules requiring broker-dealers and investment advisers to make and keep records that are necessary for the protection of investors. Thus, the Rules adopted under Section 17(a)(1) require broker-dealers to preserve certain key records. The Advisers Act has similar provisions and Rules.

Wedbush maintained policies and procedures that were designed to ensure the retention of business-related records required to be maintained by the Commission’s rules. Supervisors notified employees that under the applicable rules electronic communications were subject to surveillance by the firm. Messages sent through the firm’s systems were monitored, subject to review, and archived when appropriate. The system did not, however, have any follow-up. It also did not cover personal devices which employees were permitted to use.

The staff investigation uncovered what the Order calls “pervasive off-channel communications at all seniority levels” of the firm. Specifically, over a three-year period, beginning in 2019, employees at the firm had received and responded to Commission subpoenas for documents and records in numerous agency investigations. By failing to maintain and preserve records as required, “Wedbush likely deprived the Commission of these off-channel communications in various investigations.”

To resolve the matter Wedbush is implanting certain remedial matters. Under the terms of the settlement the firm is required to retain a Compliance Consultant and implement other remedial steps as well as adopt the recommendations of the Compliance Consultant. The Order alleges violations of Exchange Act Section 17(a) and Advisers Act Section 204.

Respondent admitted to the violations and consented to the entry of a cease-and-desist order based on Exchange Act Section 17(a) and Rule 17a-4 and Advisers Act Section 204 and Rule 204-2. The firm was also censured and will pay a penalty of $10 million. The ten other firms involved in this matter are listed here.

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Prepared:

Thomas O. Gorman

DC Attorney specializing in securities
and other agency litigation

Former SEC Senior Counsel, Enforcement
and Special Trial Counsel, GC Office
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