27. February 2024

• Wells Fargo and 10 other firms have been fined a total of $549 million for failing to properly record employee communications.
• The SEC and CFTC have both issued separate charges against the firms, with fines ranging from $35 million to $75 million.
• The regulators are encouraging firms to self-report, cooperate and remediate in order to avoid similar enforcement actions in the future.

Regulators Issue Half-Billion Dollar Fine

The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) recently fined Wells Fargo and 10 additional firms a combined total of $549 million for failing to maintain proper electronic records of employee communications.

Who was Fined?

The SEC’s investigation revealed violations at all of the affected firms, who were Bank of Montreal, BMO Capital Markets Corp, BNP Paribas, Société Générale, Wedbush Securities, Houlihan Lokey Capital, Moelis & Company, SMBC Nikko Securities America, Mizuho Securities and SG Americas Securities. Wells Fargo received the highest fine out of all the companies involved at $75 million from both the SEC and CFTC each.

What Violations Were Made?

The violations stem from undocumented “off-channel” communications between employees using applications such as iMessage, WhatsApp and Signal regarding their employers’ businesses without any recording or documentation being made by either party. This failure to keep accurate records is in breach of federal securities laws according to the SEC’s findings.

What Message is Being Sent?

Gurbir S. Grewal from the Division of Enforcement at the SEC has said “Compliance with the books and records requirements of the federal securities laws is essential to investor protection and well-functioning markets… So here are three takeaways for those firms who haven’t yet done so: self-report, cooperate and remediate.” He added that if these steps are taken then it will result in a much better outcome than waiting until they face similar enforcement action like this one again in future.

Conclusion

It is clear that this fine sends a strong message about compliance with federal securities regulations; self-reporting irregularities promptly can save companies significant amounts down the line if they act quickly enough before regulators become aware of them on their own accord.