SEC Chairman Gary Gensler Imposes $393 million in Fines Against Firms for Failing to Track the Personal Phones of its Employees

The Surveillance and Exchange Commission

The agency imposes $393 million in fines against firms for failing to track the personal phones of its employees.

By: Wall Street Journal Editorial Board, August 25, 2024:

Does Gary Gensler believe there’s a limit to his power? It doesn’t appear so after the Securities and Exchange Commission this month dunned 26 financial firms for failing to track employee “off-channel” communications. The SEC Chairman wants to surveil what Wall Street traders are doing on their personal phones.

The SEC’s $393 million in fines are the latest round in Mr. Gensler’s WhatsApp sweep. More than five dozen firms have been fined some $2 billion for allegedly violating SEC record-keeping rules because some employees used non-company phones and messaging apps to communicate about business.

Mr. Gensler’s dragnet started in 2021 with the Wall Street giants and has expanded to smaller broker-dealers, investment advisers and private funds. The latest targets include Raymond James, Piper Sandler & Co., Edward D. Jones & Co., Cowen & Co. and P. Schoenfeld Asset Management, among others.

The SEC has demanded that firms search employees’ personal phones and hand over evidence of business-related communications. It also has dangled smaller fines for firms that cooperate with its investigation of alleged records-keeping violations.The agency says firms are required by the 1934 Securities Exchange Act and 1940 Investment Advisers Act to preserve business records for regulators to review in audits or investigations. But business records then involved hard documents. It’s much harder now for companies to police and preserve employees’ electronic communications.

Nearly all the fined firms had policies in place that prohibit employees from using personal devices and messaging channels like WhatsApp for business. They also record employees’ communications and activities on work devices. Companies don’t want employees using unapproved platforms for security reasons. But enforcing such rules is difficult.

While the agency claims off-channel communications by Wall Street employees is “pervasive,” its consent decrees with the fined individual firms cite a handful of examples with scant detail about the substance of the communications. The SEC doesn’t say it has uncovered evidence of securities violations.