The Commodity Futures Trading Commission issued an order simultaneously filing and settling charges against Interactive Brokers Corp., an introducing broker, and Interactive Brokers LLC, a futures commission merchant, for failing to maintain and preserve records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.
The order requires Interactive Brokers to pay a $20 million civil monetary penalty, to cease and desist from further violations of recordkeeping and supervision requirements, and to engage in specified remedial undertakings. Interactive Brokers admits the facts detailed in the order.
Case Background
The order finds from at least 2019 to the present, Interactive Brokers failed to stop its employees, including those at senior levels, from communicating using unapproved communication methods, including messages sent via personal text and WhatsApp. The firm was required to keep certain of these written communications because they related to the firm’s CFTC-registered businesses. These written communications generally were not maintained and preserved by Interactive Brokers, and the firm generally would not have been able to provide them promptly to the CFTC if and when requested.
The order also finds the widespread use of unapproved communication methods violated Interactive Brokers’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the same supervisory personnel responsible for ensuring compliance with the firm’s policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.
Since December 2021, the CFTC has imposed $1.117 billion in civil monetary penalties on 20 financial institutions for their use of unapproved methods of communication, in violation of CFTC recordkeeping and supervision requirements. [See CFTC Press Release Nos. 8470-21; 8599-22; 8699-23; 8701-23; 8762-23; 8763-23]
Related Civil Actions
The Securities and Exchange Commission (SEC) today also announced entry of an order filing and settling charges against Interactive Brokers and imposing a civil monetary penalty for recordkeeping and supervision violations related to the use of unapproved methods of communication.
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The CFTC Division of Enforcement staff responsible for this action are Devin Cain; Alejandra de Urioste; R. Stephen Painter, Jr.; Lenel Hickson, Jr.; and Manal M. Sultan.
Source: CFTC
SEC Charges 10 Firms with Widespread Recordkeeping Failures
The Securities and Exchange Commission announced charges against five broker-dealers, three dually registered broker-dealers and investment advisers, and two affiliated investment advisers for widespread and longstanding failures to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders and acknowledged that their conduct violated recordkeeping provisions of the federal securities laws. The firms agreed to pay combined penalties of $79 million as outlined below and have begun implementing improvements to their compliance policies and procedures to address these violations.
- Interactive Brokers Corp. and affiliate Interactive Brokers LLC (together, Interactive Brokers) agreed to pay a $35 million penalty;
- Robert W. Baird & Co. Inc. agreed to pay a $15 million penalty;
- William Blair & Company LLC and affiliate William Blair Investment Management LLC (WBIM) agreed to pay a $10 million penalty;
- Nuveen Securities LLC agreed to pay an $8.5 million penalty;
- Fifth Third Securities Inc. agreed to pay an $8 million penalty; and
- Perella Weinberg Partners LP (Perella Weinberg), together with Tudor, Pickering, Holt & Co. Securities LLC (TPH) and Perella Weinberg Partners Capital Management LP (Perella Weinberg Capital), which self-reported, agreed to pay a $2.5 million penalty.
“One of the orders included in today’s announced actions is not like the others,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “There are real benefits to self-reporting, remediating and cooperating.”
The SEC’s investigations uncovered pervasive and longstanding off-channel communications at all 10 firms. As described in the SEC’s orders, the broker-dealer firms admitted that, from at least 2019, their employees communicated through personal text messages about the business of their employers, and the investment adviser firms admitted that their employees sent and received off-channel communications related to recommendations made or proposed to be made and advice given or proposed to be given. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws. By failing to maintain and preserve required records, certain of the firms likely deprived the SEC of these off-channel communications in various SEC investigations. The failures involved employees at multiple levels of authority, including supervisors and senior managers.
Interactive Brokers, Baird, William Blair, Nuveen, Fifth Third, Perella Weinberg, and TPH were each charged with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and with failing to reasonably supervise with a view to preventing and detecting those violations. Baird, William Blair, WBIM, Fifth Third, and Perella Weinberg Capital were each charged with violating certain recordkeeping provisions of the Investment Advisers Act of 1940 and with failing to reasonably supervise with a view to preventing and detecting those violations.
In addition to the significant financial penalties, each of the firms was ordered to cease and desist from future violations of the relevant recordkeeping provisions and was censured. The firms also agreed to retain independent compliance consultants to, among other things, conduct comprehensive reviews of their policies and procedures relating to the retention of electronic communications found on personal devices and their respective frameworks for addressing non-compliance by their employees with those policies and procedures.
Separately, the Commodity Futures Trading Commission announced settlements with Interactive Brokers for related conduct.
The SEC’s investigations into Interactive Brokers, Perella Weinberg, TPH, and Perella Weinberg Capital were conducted by Laurel S. Fensterstock, Karolina Klyuchnikova, Austin Thompson, and Alison R. Levine and supervised by Thomas P. Smith Jr. of the New York Regional Office. The SEC’s investigations into Baird, William Blair, WBIM, Nuveen, and Fifth Third were conducted by Som P. Dalal, Ruta G. Dudenas, Amy S. Cotter, and Anne C. McKinley and supervised by Paul A. Montoya and Kathryn A. Pyszka of the Chicago Regional Office.
Source: SEC
