Units of Huntington (HBAN), Others Fined for Record-Keeping Flaws
Sixteen Wall Street firms have been charged with civil penalties of more than $81 million for record-keeping failures. The Securities and Exchange Commission (“SEC”) has penalized five broker-dealers, seven dually registered broker-dealers and investment advisers, and four affiliated investment advisers for widespread and long-lasting failures to maintain and preserve electronic communications.
The firms involved include Northwestern Mutual Investment Services, Guggenheim Securities, Oppenheimer & Co., Key Investment Services, and Cambridge Investment Research, along with units of Lincoln National Corporation LNC, U.S. Bancorp USB and Huntington Bancshares Incorporated HBAN.
Per the SEC’s findings, all sixteen firms used unapproved communication methods, known as off-channel communications, for work purposes.
The broker-dealer firms admitted that from 2019 or 2020, their employees communicated through personal text messages about the business of their employers. The investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations and advice given or proposed to be given.
These firms did not maintain the substantial majority of the off-channel communications, which is a violation of federal securities laws. The failures involved employees at multiple levels of authority, including supervisors and senior managers.
Gurbir S. Grewal, the director of the SEC’s division of enforcement, stated, “Today’s actions against these 16 firms result from our continuing efforts to ensure that all regulated entities comply with the recordkeeping requirements, which are essential to our ability to monitor and enforce compliance with the federal securities laws. Once again, one of these orders is not like the others: Huntington’s penalty reflects its voluntary self-report and cooperation.”
Northwestern Mutual will pay the highest penalty of $16.5 million, followed by Guggenheim Securities paying $15 million, Oppenheimer paying $12 million and Cambridge Investment paying $10 million.
Among others, Key Investment has agreed on a $10-million penalty, whereas LNC, USB and HBAN will pay $8.5 million, $8 million and $1.25 million, respectively.
Apart from financial penalties, each firm has been ordered to cease and desist from future violations of the relevant recordkeeping provisions, and has been censured.
The firms have agreed to retain independent compliance consultants to conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
Currently, LNC has a Zacks Rank #5 (Strong Sell). HBAN and USB carry a Zacks Rank #3 (Hold).
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