The United States Securities and Exchange Commission (SEC) has scaled up its investigatory approach to Wall Street private messaging app usage.
According to a Reuters report, the regulator collected thousands of employees’ messages from over a dozen prominent Wall Street investment companies in the latest probe phase.
Leading Wall Street firms such as Carlyle Group, KKR & Co, Apollo Global Management, and Blackstone are on the SEC’s radar. Also, the probe involves some top hedge funds, including Citadel.
SEC Collects Staff’s Messages, Escalating Investigation
The move from the SEC follows a two-year crackdown on violating record-keeping rules with an initial target on broker-dealers. The crackdown has generated more than $2 billion in civil penalties.
Previously, the regulator requested that the firms internally review their messaging flow. The request came following the SEC’s indication that the companies use WhatsApp, Signals, and other similar messaging applications for business and work-related discussions.
However, the SEC’s investigation has spread to investment advisers and firms. Further, the report revealed that the recent investigation phase from the securities regulator, over the past few months, involved over a dozen investment advisers.
The regulator requested access to messages on private devices and applications of selected staff, which include some senior executives. Also, the requested messages should cover the firms’ first half of 2021 business discussions.
The affected executives have released their phones and devices to their employers and lawyers for copying. Also, the copied messages have been forwarded to the SEC in compliance with its investigatory demands.
Regarding the implication of the SEC’s scrutiny on companies’ communication processes, many believe it brings escalated risks. As reported by Reuters, a source familiar with the matter said:
“The more information you give the SEC, the more you fuel the beast.”
Furthermore, at least 16 companies, including Carlyle, KKR, Blackstone, Apollo, and TPG, have confirmed that the securities regulator is probing their official communication system. However, they did not detail the range of the probe. On its part, Citadel’s spokesperson denied making any comment.
SEC Changed Its Investigatory Approach On Investment Companies
The SEC’s latest investigatory approaches on investment companies differ from those on broker-dealers. The regulator asked the broker companies to personally review their staff messages and report the number of work-related discussions.
Further, the SEC staff only reviewed a few messages personally to confirm the report from the companies. Moreover, all reviews are completed anonymously to uphold the confidentiality of SEC’s investigations.
SEC Chair Gary Gensler had maintained that probes into companies’ communication systems are necessary to enforce compliance with record-keeping rules. Also, it would aid the regulator in identifying all lapses and potential risks.
In August, the SEC charged eleven Wall Street companies with widespread record-keeping failures, resulting in approximately $289 million in fines on the firms.
…. to be continued
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