Broker-dealers and employees of publicly traded companies must be careful about how they communicate regarding securities trades. Under SEC Books and Records Rules, people in such positions are required to preserve comprehensive records regarding the purchase and sale of stocks, customer complaints, and other important matters. These rules apply to communications with clients and between employees, directors and officers.
Speedy advances in communication technology have resulted in gray areas in these matters, as more and more people have adopted novel digital technologies as a routine mode of communicating about business. Some communications have garnered unfavorable attention from SEC investigators.
A multi-million dollar mistake
In a recent case, JP Morgan Chase & Co. was fined $200 million for violating communications rules. The fines stemmed from employees communicating about trading activity via digital means such as text messages, personal email accounts and instant message apps.
The SEC relies upon meticulous record-keeping to confirm that broker-dealers and other parties are not committing fraud, insider trading or other illegal activity. In this case, JP Morgan was accused of failing to preserve these communications as required by law.
“Since the 1930s, recordkeeping and books-and-records obligations have been an essential part of market integrity and a foundational component of the SEC’s ability to be an effective cop on the beat,” said SEC Chair Gary Gensler. “As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight.”
The importance of reducing risk
Many firms have enacted rules to eliminate the risk of employees running afoul of communication regulations, but the growing list of communication methods creates a moving target some have found difficult to hit.
The SEC has strengthened its enforcement of communication rules, notably conducting a broad inquiry into the record preservation practices of Wall Street firms this past fall. As a result, firms have had to dig through years of messaging activity to maintain their compliance with regulations.
If you have concerns about your exposure to a communications violation inquiry, a thorough audit of your internal practices may be warranted. With these issues in mind, we encourage you to contact the securities law attorneys at Ford O’Brien Landy LLP. We advise and represent clients in New York, Texas and nationwide.
Source: Bloomberg News, “JPMorgan Set to Pay $200 Million Fine Over Lax Staff Monitoring,” December 17, 2021