ENFORCEMENT—Off-channel probe sweeps up another 12 firms - 15 January 2025

One firm self-reported and received a significantly lower penalty than the others.

The SEC picked up another 12 firms in its ongoing sweep of recordkeeping violations related to off-channel communications. Nine investment advisers and three broker-dealers agreed to pay a combined $63 million in civil penalties and to shore up their compliance policies and procedures. Penalties for each firm range from $11 million on the high end to just $600,000 for a firm that self-reported its violations.

Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement, said that the reduced penalty for the self-reporting firm “demonstrat[es] yet again that there are tangible benefits to be gained from proactive cooperation.”

The recordkeeping violations don’t just impede regulatory investigations, Wadhwa said; they “implicate the transparency and the integrity of the markets and their participants.”

Violations. Personnel at each sanctioned firm used text messages or messaging apps to conduct firm business. This included personnel at multiple levels of authority, including supervisors and senior managers. The firms did not maintain most of these mobile communications, in direct violation of the recordkeeping requirements of the Investment Advisers Act and/or Exchange Act. The recordkeeping failures also meant that the firms failed to reasonably supervise their personnel.

SEC staff discovered the recordkeeping failures through a risk-based initiative to investigate the use of off-channel and unpreserved communications.

Settlements. Under the settled cease-and-desist orders, each of the firms is censured and ordered to pay a civil penalty. The firms also agreed to undertakings to review and improve their policies and procedures.

The settling firms (broker-dealers are indicated) and penalty amounts are:

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., a dually registered investment adviser and broker-dealer, 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, a broker-dealer, agreed to pay a $4 million penalty;

PJT Partners LP, a broker-dealer that self-reported, agreed to pay a $600,000 penalty.

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