On March 29, the Securities and Exchange Commission (SEC) published Notices of Covered Actions (NoCAs) for a series of related enforcement actions charging firms with widespread recordkeeping failures.
The SEC charged five broker-dealers, seven dually registered broker-dealers, and four affiliated investment advisers for wide-ranging and persistent deficiencies in maintaining and preserving electronic communications.
The NoCAs signal that the SEC Office of Whistleblower is now accepting whistleblower award claims for the enforcement actions. Through the SEC Whistleblower Program, whistleblowers who voluntarily provide original information that leads to a successful enforcement action are entitled to monetary awards of 10-30% of the proceeds collected in action.
The SEC alleges the 16 firms engaged in the pervasive and longstanding uses of unapproved off-channel communication methods, from at least 2019 to 2020. For example, the SEC reports that the broker-dealers’ employees “communicated through personal text messages about the business of their employers.”
According to the SEC, the failures to maintain or preserve a substantial majority of these off-channel communications violated the federal securities laws, which involved employees at multiple levels of authority, including supervisors and senior managers. In addition, the SEC claims that by failing to retain necessary records “some of the firms likely deprived the SEC of these off-channel communications in various SEC investigations.”
The firms admitted that their conduct violated federal securities law. They agreed to pay combined civil penalties of more than $81 million. They were also ordered to avoid violations of future compliance policies and procedures, including retaining an independent compliance consultant to conduct a comprehensive review.
- Northwestern Mutual Investment Services LLC (NMIS), Northwestern Mutual Investment Management Co. LLC (NMIM), and Mason Street Advisors LLC (Mason Street) agreed to pay a $16.5 million penalty.
- Guggenheim Securities LLC (Guggenheim Securities) and Guggenheim Partners Investment Management LLC (GPIM) agreed to pay a $15 million penalty.
- Oppenheimer & Co. Inc. (Oppenheimer) agreed to pay a $12 million penalty.
- Cambridge Investment Research Inc. (CIR) and Cambridge Investment Research Advisors Inc. (CIRA) agreed to pay a $10 million penalty.
- Key Investment Services LLC (KIS) and KeyBanc Capital Markets Inc. agreed to pay a $10 million penalty.
- Lincoln Financial Advisors Corporation and Lincoln Financial Securities Corporation agreed to pay an $8.5 million penalty.
- U.S. Bancorp Investments Inc. (U.S. Bancorp) agreed to pay an $8 million penalty.
- The Huntington Investment Company (HIC), Huntington Securities Inc. (HSI), and Capstone Capital Markets LLC (Capstone), which self-reported, agreed to pay a $1.25 million penalty.
Since it was established in 2010, the SEC Whistleblower Program has been an immense success, awarding over $1.9 billion to whistleblowers for their role in exposing securities fraud.
The bipartisan SEC Whistleblower Reform Act, introduced in March, would make a number of technical reforms to the program, including extending anti-retaliation protections to internal whistleblowers.
According to Allison Herren Lee, former SEC Commissioner and currently Of Counsel at Kohn, Kohn, and Colapinto, the SEC Whistleblower Reform Act of 2023 “will help ensure that the SEC Whistleblower Program remains an indispensable tool in the Commission’s efforts to police wrongdoing and protect investors.”
National Whistleblower Center (NWC) is calling for the immediate passage of the SEC Whistleblower Reform Act. It has set up Action Alert calling on whistleblower supports to join them in urging Congress to pass the bill and protect internal corporate whistleblowers.
Join NWC in Taking Action:
Protect Internal Corporate Whistleblowers