Wall Street banks to pay $1.8bn over messaging violations
Eleven Wall Street banks and brokers including Goldman Sachs, Morgan Stanley and Barclays have agreed to pay more than $1.8bn in fines over charges of “widespread” and “longstanding” failures in their record-keeping practices, US regulators said on Tuesday.
The institutions admitted to violating federal record-keeping requirements, the US Securities and Exchange Commission said after an investigation uncovered what it called “pervasive off-channel communications”.
Regulators described executives discussing business via text message on their personal devices when their chats should have been recorded and available to government authorities. The violations occurred from January 2018 to September 2021 and involved staff at different levels of seniority, the SEC said.
The investigation became public last year and shook Wall Street, costing some bankers their jobs and pushing lenders to crack down on unauthorised use of encrypted messaging services such as WhatsApp and Signal.
The fines dwarf previous penalties for record-keeping lapses. In an early sign of the Wall Street crackdown, JPMorgan Chase in December agreed a $200mn fine over staff messages on personal devices, with $125mn going to the SEC and $75mn for the Commodity Futures Trading Commission, the main US derivatives regulator.
According to the SEC, employees including senior investment bankers exchanged tens of thousands of messages via unofficial channels with colleagues and external parties.
The agency said the failure to store the data likely prevented it from reviewing communications as part of several investigations.
“Today’s actions — both in terms of the firms involved and the size of the penalties ordered — underscore the importance of record-keeping requirements: they’re sacrosanct,” said Gurbir Grewal, SEC enforcement director.
The 11 institutions agreed to pay more than $1.1bn in penalties levied by the SEC and more than $710mn to settle similar charges brought by the CFTC that involved their swap dealers and futures brokers.
The SEC and CFTC said the groups admitted to the facts laid out in their settlement orders with the agencies, though Bank of America and Nomura neither admitted nor denied certain findings of the CFTC.
Gretchen Lowe, the CFTC’s acting director of enforcement, said: “A registrant’s disregard of its obligations threatens the commission’s ability to effectively and efficiently conduct examinations and investigations.”
CFTC commissioner Christy Goldsmith Romero said the violations were “well known” within the banks, “but no one stopped it”.
BofA faced the largest total financial penalties at $225mn, with most others, including Goldman, Morgan Stanley and Citigroup, following at $200mn.
According to the CFTC, a former trading desk head at BofA directed some of his juniors to delete messages from their personal devices, to chat via Signal “when off the desk” and have the exchanges be automatically deleted.
Of the groups named in the regulatory orders, BofA, Barclays, Credit Suisse, Deutsche Bank, Goldman, Jefferies and Nomura declined to comment on the settlements. Morgan Stanley, Citigroup and UBS each said they were “pleased” to have resolved the matter. Cantor Fitzgerald did not immediately respond to requests for comment.
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