Eye-Watering Texting Fines Need Transparency: SEC Roundup

Welcome to SEC Roundup, a bimonthly video series by former Securities and Exchange Commission senior trial counsels Nick Morgan and Tom Zaccaro, founders of the nonprofit advocacy group Investor Choice Advocates Network.

In this episode, Chris Iacovella, president and CEO of the American Securities Association,  explains ASA’s recent lawsuit filed against the SEC for information under the Freedom of Information Act concerning the SEC’s eye-watering penalties against certain broker-dealers for purportedly failing to retain “off-channel” communications.

In September 2021, the SEC began to investigate certain broker-dealers’ retention of “off-channel” communications, such as text messages on personal devices, states the lawsuit, filed by ASA, a trade group representing regional financial services firms, in the U.S. District Court for the Middle District of Florida.

The issue of how the SEC calculates penalties (particularly in the amounts at issue in the broker-dealer settlements) should not be hidden from the public for examination and scrutiny, according to ASA’s lawsuit.

ASA states that it filed three FOIA requests for records in March concerning the SEC’s “off-channel” communications sweep. The SEC, however, has refused to produce any documents, ASA said.

“When you ask for that transparency and you don’t get it, it leads you to believe something else is going on,” Iacovella says. “The words arbitrary and capricious continues to come up as it relates to this [texting] fine structure.”

See the video for the discussion with Iacovella.