Unrelated Investigation Leads to Fine/Censure for Firm that Failed to Retain Text Messages
The SEC fined and censured a broker-dealer for not retaining text messages used for business purposes. In response to an information request arising from an enforcement investigation into a third party, the broker-dealer produced communications that referenced text messages that were not retained by the firm. The firm’s policies and procedures prohibited the use of text messages for business purposes but relied on employee certifications rather than systems or testing. The SEC maintains that firm management, including compliance personnel, knew about the use of texts and, in fact, used text messages themselves. As part of its remediation, the firm implemented a firm-sponsored software solution to preserve text messages from employees’ personal devices.
There are several lessons from this case: (i) people are going to use text messages (and other media), so a policy prohibiting their use is not feasible; (ii) you cannot rely on employee certifications alone to test compliance; (iii) the C-suite must comply with compliance policies and procedures to set an example; and (iv) the SEC can and will bring an enforcement action for compliance failures even where they don’t result in any client harm.