On February 9, 2024, the U.S. Securities and Exchange Commission (SEC) announced settlements with 16 broker-dealer and investment advisory firms in connection with their failures to maintain and preserve electronic “off-channel” or “ephemeral” communications.

The SEC said that employees at various levels of the companies – including supervisors and senior managers – made “pervasive and longstanding uses” of off-channel communications, a “substantial majority” of which were not preserved as required by federal securities laws.  The SEC further noted that the firms’ recordkeeping failures likely deprived the SEC of relevant communications in various SEC investigations and proceedings.

As part of the settlements reached with the SEC, the firms agreed to pay combined civil penalties of more than $81 million and to implement changes to their compliance policies and procedures to address these recordkeeping deficiencies.  The firms also agreed to retain independent compliance consultants to review their internal policies on off-platform communications stored on employees’ personal devices.

Gurbir Grewal, Director of the SEC’s Division of Enforcement, emphasized the importance of voluntary self-reporting and cooperation, noting that one of the firms received a substantially lower fine of $1.25 million as a result, compared to the considerably higher penalties imposed on other firms, which ranged between $8 million and $16.5 million.

The SEC’s recent actions underscore its commitment to enforcing regulations surrounding off-channel communications and maintaining comprehensive records of business-related exchanges.  These enforcement measures signal a proactive stance by the SEC to hold businesses accountable for lapses in compliance, reinforcing the importance of adhering to regulatory standards within the financial sector.  These enforcement actions – the latest in a series of such actions brought by regulators – also make clear that regulatory scrutiny of “ephemeral” communications is anything but.