The Securities and Exchange Commission (SEC) denied an attempt by 16 firms (including Raymond James, LPL, Ameriprise and Osaic) to revise settlements they made with the commission regarding their supervision of employees’ off-channel communications.
According to the commission’s order rejecting the request, the firms sought to “modify” their settlements to “equalize” them with what they claimed were less onerous settlement agreements reached with other firms at later dates.
The other firms involved in the attempt included William Blair & Company, Baird, Key Investment Services, Oppenheimer, Hilltop Securities, Piper Sandler, Apex Clearing, Truist, RBC, Regions Securities, Invesco and Stifel.
In September 2022, the SEC fined 15 broker/dealers and one investment advisor $1.1 billion to settle charges that they’d consistently failed to follow record-keeping requirements of business-related texts and through platforms like WhatsApp. The fined firms included some of the biggest names in the space, such as Bank of America, Citigroup, Goldman Sachs and Morgan Stanley.
During the next several years, the commission continued to settle with firms for similar alleged lapses. In August 2024, the SEC fined 26 firms a combined $392.75 million in penalties (including Raymond James, Edward Jones, LPL and Osaic), while fines against Stifel and Invesco followed several months later.
According to the order released Monday, the 16 firms decried that the requirements in later settlements differed from their own mandates. They asked the SEC to remove the requirement that they hire an independent compliance consultant for two years, replacing the demand with a one-time internal audit.
The firms also wanted to remove the requirement that firms report all employee discipline regarding off-channel communications to the SEC for two years and that firms adhere to these guidelines (which the firms claimed would lead to heightened FINRA supervision for six years).
However, the SEC Enforcement Division denied the request, saying firms need to demonstrate “compelling” or “extraordinary” circumstances to change a settlement, which the commission argued the firms hadn’t done. According to the order, a firm’s decision to settle “early” carries “both an inherent risk and potential benefit.”
“Though the settling party must act with relatively less information than those that settle later, it avoids the time and expense of further negotiation and litigation,” the SEC order read. “Settlor’s remorse—and a desire to revisit that risk calculus—does not justify upsetting a final, agreed-upon settled order.”
According to the SEC, the firms didn’t argue that they met “unforeseen” obstacles when completing the mandates or that other changes made them impossible to complete. The only argument they made was that firms that settled later negotiated “better settlement terms,” which didn’t suffice for the commission as a reason to modify their agreements.
Commissioner Hester Peirce disagreed, claiming that modifying the agreements would be “an unusual but warranted” step.
In her dissent, Peirce argued that the aforementioned mandates in these firms’ settlement agreements were voluntary in later settlements with other firms, which she claimed made little sense considering the “underlying violation” was the same.
Peirce also argued that some b/ds would be subject to heightened FINRA supervision by the agreements, while other firms (including standalone IAs, municipal advisors, NRSROs and b/ds that settled later) were not. While she agreed that the “settlor’s remorse” alone didn’t justify overturning previously negotiated settlements, she believed that “something more significant” was happening.
“When the Commission engages in enforcement sweeps that ensnare large numbers of firms across different parts of its regulatory ambit, it should endeavor to ensure both that the remedies it selects are commensurate to the conduct and that it imposes those remedies in a fair and even-handed manner across firms,” Pierce wrote.
Last week, the U.S. Senate confirmed Paul Atkins, President Donald Trump’s choice as SEC Chair, to lead the agency. Atkins is expected to steer the commission’s enforcement priorities away from supervisory failures (like the off-channel communications settlements) into situations involving documented investor harm.
During a recent Investment Adviser Association (IAA) conference, Peirce also criticized the agency’s approach in its WhatsApp-related settlements, suggesting the SEC revisit its related rules considering the breadth of charges brought by the commission in recent years.
At the same conference, Corey Schuster, a co-chief in the SEC Enforcement Division’s Asset Management Unit, said it was unlikely there’d be a large number of enforcement actions related to off-channel communications, arguing the message had been sent (though he expected to remain a focus during examinations).