The Securities and Exchange Commission today announced charges against nine investment advisers and three broker-dealers for failures by the firms and their personnel to maintain and preserve electronic communications, in violation of recordkeeping provisions of the federal securities laws.
The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, agreed to pay combined civil penalties of $63.1 million, as outlined below, and have begun implementing improvements to their compliance policies and procedures to address these violations. One of the firms, as noted below, self-reported its violations and, as a result, will pay significantly lower civil penalties than it would have otherwise.
- Blackstone Alternative Credit Advisors LP, together with Blackstone Management Partners L.L.C. and Blackstone Real Estate Advisors L.P., agreed to pay a combined $12 million penalty;
- Kohlberg Kravis Roberts & Co. L.P. agreed to pay a $11 million penalty;
- Charles Schwab & Co., Inc. agreed to pay a $10 million penalty;
- Apollo Capital Management L.P. agreed to pay a $8.5 million penalty;
- Carlyle Investment Management L.L.C., together with Carlyle Global Credit Investment Management L.L.C., and AlpInvest Partners B.V., agreed to pay a combined $8.5 million penalty;
- TPG Capital Advisors LLC agreed to pay an $8.5 million penalty;
- Santander US Capital Markets LLC agreed to pay a $4 million penalty;
- PJT Partners LP, which self-reported, agreed to pay a $600,000 penalty.
“In order to effectively carry out their oversight responsibilities, the Commission’s Examinations and Enforcement Divisions must, and indeed do, rely heavily on registrants complying with the books and records requirements of the federal securities laws. When firms fall short of those obligations, the consequences go far beyond deficient document productions; such failures implicate the transparency and the integrity of the markets and their participants, like the firms at issue here,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “In today’s actions, while holding firms responsible for their recordkeeping failures, the Commission once more recognized and credited a registrant’s self-report, demonstrating yet again that there are tangible benefits to be gained from proactive cooperation.”
Each of the SEC’s investigations uncovered the use of unapproved communication methods, known as off-channel communications, at these firms. As described in the SEC’s orders, the firms admitted that, during the relevant periods, their personnel sent and received off-channel communications that were records required to be maintained under the securities laws. The failures involved personnel at multiple levels of authority, including supervisors and senior managers.
The firms were each charged with violating certain recordkeeping provisions of the Investment Advisers Act or the Securities Exchange Act. The firms were also each charged with failing to reasonably supervise their personnel 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 SEC’s investigations into Apollo, the Blackstone entities, the Carlyle entities, Kohlberg Kravis Roberts & Co., and TPG were conducted by Wesley W. Wintermyer, Karen E. Willenken, Christopher M. Castano, Craig C. Welter, and Alison T. Conn. The SEC’s investigations into Charles Schwab and Santander were conducted by Laurel S. Fensterstock, Austin Thompson, Karolina Klyuchnikova, and Alison R. Levine. The SEC’s investigation into PJT was conducted by Gargi Chaudhuri, Miles L. Galbraith, and Laura Josephs. Each of these matters was supervised by Thomas P. Smith, Jr. of the New York Regional Office.
