16 Biggest Fines in SEC's Texting Crackdown

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The Securities and Exchange Commission “has been making waves with its off-channel communications sweep for over two years, and the scope of the initiative only seems to be growing,” according to Hayley Trahan-Liptak, a partner in K&L Gates’ Boston office.

This growth is “illustrated by the first-ever settlement with a stand-alone investment adviser [Senvest Management] in April,” Trahan-Liptak told ThinkAdvisor in an email.

While there’s been “a great deal of outrage over the scope of the sweep, especially the high penalty amounts, and the broad way the SEC has appeared to apply the record-retention rules in the Exchange and Advisers Acts, to date registrants appear to be accepting settlements rather than litigating the issues,” Trahan-Liptak said.

And don’t expect the recent lawsuit brought by the American Securities Association against the SEC to change the agency’s course, she said.

The ASA sued the SEC on June 6 for failing to produce documents under the Freedom of Information Act regarding its off-channel communications sweep.

The suit ”puts some pressure on the SEC,” as the securities regulator “has not yet had to litigate any matters related to the sweep,” Trahan-Liptak said.

But the SEC “has historically enjoyed broad discretion under Exception 7(A) of FOIA to withhold information related to ongoing law enforcement proceedings, and the SEC will almost certainly claim that information about the calculation of penalties for settled proceedings is related to ongoing investigations and disclosure would interfere with those matters,” Trahan-Liptak wrote.

“Even if the courts disagree,” she added, “it is likely to take some time before any more detailed information is released, during which we can expect the SEC’s sweep to continue.”

In fact, LPL Financial expects to pay a $50 million fine for off-channel communications before June 30, the independent broker-dealer reported in its first-quarter earnings statement.

See the gallery for the top 15 biggest fines assessed by the SEC so far, out of a total of over $3 billion in fines and penalties. The Commodity Futures Trading Commission imposed additional fines on some firms.

We summarized some of the misconduct found in each SEC case, but at each of these firms, investigators found misuse of unmonitored communication channels by employees at all levels of seniority.

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