SEC Hides Disqualification Waiver Order In High Profile Recordkeeping Release

September 28, 2022

The SEC charged 15 broker-dealers with violating certain recordkeeping provisions of the Securities Exchange Act  and with failing reasonably to supervise with a view to preventing and detecting those violations. Additionally, the SEC charged affiliated advisor DWS Investment Management Americas, Inc. with violating certain recordkeeping provisions of the Investment Advisers of 1940 and with failing reasonably to supervise with a view to preventing and detecting those violations. SEC Charges 16 Wall Street Firms with Widespread Recordkeeping Failures / Firms admit to wrongdoing and agree to pay penalties totaling more than $1.1 billion (SEC Release)

Pervasive Off-Channel Communications 

As alleged in part in the SEC Release:

The SEC staff's investigation uncovered pervasive off-channel communications. The firms cooperated with the investigation by gathering communications from the personal devices of a sample of the firms' personnel. These personnel included senior and junior investment bankers and debt and equity traders.

From January 2018 through September 2021, the firms' employees routinely communicated about business matters using text messaging applications on their personal devices. 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 relating to their businesses, the firms' actions likely deprived the Commission of these off-channel communications in various Commission investigations. The failings occurred across all of the 16 firms and involved employees at multiple levels of authority, including supervisors and senior executives. 

Millions in Fines

The following eight firms (and five affiliates) agreed to pay penalties of $125 million each:
  • Barclays Capital Inc.;
  • BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
  • Citigroup Global Markets Inc.;
  • Credit Suisse Securities (USA) LLC;
  • Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
  • Goldman Sachs & Co. LLC;
  • Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
  • UBS Securities LLC together with UBS Financial Services Inc.
Two firms agreed to pay penalties of $50 million each:
  • Jefferies LLC; and
  • Nomura Securities International, Inc.
Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.

READ the SEC Orders: 

Somewhat of an odd, stilted title, no? If you click on the link, this is how the SEC Order is actually described:

Before the

Release No. 11109 / September 27, 2022

In the Matter of
Certain Broker-Dealer Practices, Respondents.


As such, what the SEC Release tried to sanitize as SEC Order - Certain Broker Dealer Practices is, in fact, a Disqualification Waiver Order, which in pertinent part states:

The Commission has the authority to waive the disqualifications of Regulations A, D, E, and Crowdfunding upon a showing of good cause and without prejudice to any other action by the Commission, if the Commission determines that it is not necessary under the circumstances that an exemption be denied. See 17 CFR. §§ 230.262(b)(2), 230.506(d)(2)(ii), 230.602(e), and 227.503(b)(2).  

In light of the Firms' participation in the Broker-Dealer Off-Channel Communications Initiative, assuming the Firms comply with the terms of the Record-Keeping Orders, and in light of the benefits of the Broker-Dealer Off-Channel Communications Initiative, the Commission has determined that, pursuant to Rules 262(b)(2), 506(d)(2)(ii), and 602(e) of the Securities Act and Rule 503(b)(2) of Regulation Crowdfunding good cause exists for not denying the various exemptions from registration discussed herein.


Accordingly, IT IS ORDERED, pursuant to Rules 262(b)(2), 506(d)(2)(ii), and 602(e) of the Securities Act and Rule 503(b)(2) of Regulation Crowdfunding, that waivers from the application of the disqualification provisions of Rules 262(a)(4)(ii), 506(d)(1)(iv)(B), and 602(c)(3) of the Securities Act and Rule 503(a)(4)(ii) of Regulation Crowdfunding, resulting from the entry of the Record-Keeping Orders against the Firms are hereby granted to the Firms as reflected in the attached appendix. Nothing in this Order shall effect any pre-existing disqualification under the above provisions and nothing in this Order shall be interpreted to waive or limit any conditions or undertakings which are in place as a result of any prior waiver granted to any Firm. Failure to comply with terms of a Record-Keeping Order would require us to revisit our determination that good cause has been shown and could constitute grounds to revoke or further condition the waiver. The Commission reserves the right, in its sole discretion, to revoke or further condition the waiver under these circumstances.

CFTC Settlements The CFTC Release asserts in part that: 

The settling swap dealers and FCMs and their civil monetary penalties are:

  • Bank of America (Bank of America, N.A.; BofA Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith Incorporated (which was registered as an FCM until May 2019 and is currently registered as an introducing broker)), $100 million
  • Barclays (Barclays Bank, PLC and Barclays Capital Inc.), $75 million
  • Cantor Fitzgerald (Cantor Fitzgerald & Co.), $6 million
  • Citi (Citibank, N.A.; Citigroup Energy Inc.; and Citigroup Global Markets Inc.), $75 million
  • Credit Suisse (Credit Suisse International and Credit Suisse Securities (USA) LLC), $75 million
  • Deutsche Bank (Deutsche Bank AG and Deutsche Bank Securities Inc.), $75 million
  • Goldman Sachs (Goldman Sachs & Co. LLC f/k/a Goldman Sachs & Co.), $75 million
  • Jefferies (Jefferies Financial Services, Inc. and Jefferies LLC), $30 million
  • Morgan Stanley (Morgan Stanley & Co. LLC; Morgan Stanley Capital Services LLC; Morgan Stanley Capital Group Inc.; and Morgan Stanley Bank, N.A.), $75 million
  • Nomura (Nomura Global Financial Products Inc.; Nomura Securities International, Inc.; and Nomura International PLC), $50 million
  • UBS (UBS AG; UBS Financial Services, Inc.; and UBS Securities LLC), $75 million
I vote to approve the Commodity Futures Trading Commission's ("CFTC") enforcement actions that hold 11 Wall Street banks and other financial institutions accountable for senior executives, traders, and other employees' widespread use of unauthorized communications methods - like encrypted messaging apps and private emails and texts - to avoid creating records and evade regulatory and bank oversight.[1]  These cases shut down and bring transparency and public accountability to Wall Street's pervasive and evasive bank practices that jeopardize market integrity and violate the law.  The CFTC is requiring all defendants to admit wrongdoing,[2] pay historically high penalties for recordkeeping violations of the law (a combined $1.8 billion between CFTC and parallel Securities and Exchange Commission ("SEC") cases), and fix internal policies and practices to ensure that both U.S. regulators and bank executives can prevent, detect, and correct unauthorized illegal communications.[3]

By bringing these cases at the same time, and in parallel with the SEC, the Commission is sending a strong message to all that we regulate that we will not tolerate efforts to evade our regulatory oversight - oversight that these entities signed up for when they registered with the Commission.

Wall Street institutions do not get to keep regulators in the dark while enjoying all of the benefits of being a regulated entity in U.S. financial markets.  Those choosing to participate in U.S. financial markets are on notice - The era of evasive communications practices is over.  The CFTC will hold you accountable.

It's time for Wall Street to stop waiting for an enforcement action before it changes its practices.  Tone at the top must change on Wall Street.  Change can only happen if the banks' C-suite establishes a culture of compliance over evasion."

 - Commissioner Christy Goldsmith Romero

The illegal conduct impeded the CFTC's ability to oversee markets and ensure compliance with laws that protect investors, promote market integrity, and serve other public interests.  The illegal conduct also impeded the banks' ability to supervise their employees and ensure that bank practices matched internal bank policies prohibiting these communication methods.  The CFTC found significant unauthorized communication practices at the direction of senior executives, who knew they were violating bank policies but wanted to obfuscate communications surrounding trading.[4]  The conduct found serves as a red flag about Wall Street's culture.

I.                The widespread evasive use of unauthorized communications undermines law enforcement.

The CFTC is sending a zero-tolerance message that we will not allow Wall Street to undermine our law enforcement by obfuscating or deleting communications surrounding trading.  As the CFTC was conducting important investigations related to market integrity, we found evidence that communications were moved offline to unauthorized communication methods going years back.

In one example, Bank of America employees used WhatsApp, with one trader writing, "We use WhatsApp all the time but we delete convos regularly." The head of a trading desk routinely directed traders to delete messages on personal devices and to use Signal, including during the CFTC's investigation.  In another example, the CFTC found evidence of offline communications at Nomura, and Nomura traders then took efforts to obstruct the investigation.  A trader deleted messages including WhatsApp after the CFTC sent a request to preserve documents.  The deleted messages included incriminating statements about trading. 

Disturbingly, in several instances, when the CFTC brought this illegal conduct to the bank's attention, it was not taken seriously, and there were efforts to obstruct CFTC law enforcement.

II.              Wall Street serves as the first line of defense against insider trading, market manipulation and other illegal behavior that undermines market integrity, which they cannot fulfill when they don't have a "tone at the top" to stop the practice of using self-deleting, self-managed encrypted messaging apps that violate their own policies that implemented the law. 

Wall Street financial institutions serve as the first line of defense for market integrity through policies and supervision designed to follow the law.  When this breaks down, market integrity is on the line.  A common theme among the cases is that tens of thousands of communications were intentionally meant to keep the bank's internal compliance and regulators in the dark.  Many private communications channels are encrypted end-to-end and leave no recoverable record for the bank's supervision. 

Another common theme is that the CFTC found senior executives - the very people responsible for keeping a bank's house in order - who directed employees to use unauthorized communications channels and delete messages.  Some executives even lied to the CFTC and SEC. 

III.            A broader message

It's time for Wall Street to stop waiting for an enforcement action before they change their practices.  The illegality that the CFTC found was disturbingly widespread, evasive, directed or sanctioned by senior bank executives, and a clear violation of the law and internal bank policies.  It was well known within these banks that their internal policies were being flagrantly violated in practice.  But no one stopped it.  In the future as more time passes from these enforcement actions, and as there is adoption of new technologies and evolving means of private communication, I am concerned that there again will be a temptation for some to evade regulatory requirements and keep the CFTC in the dark.

Tone at the top dictates a bank's culture and that tone must change on Wall Street.  The tone at the top the CFTC found was one of evasion and obfuscation, to keep bank compliance and regulators in the dark.  Change can only happen if the bank's C-suite establishes a culture of compliance over evasion.  It is far past time for the C-suite to step up.

[1] The 11 defendants are commonly known as Bank of America, Barclays, Cantor Fitzgerald, Credit Suisse, Deutsche Bank, Goldman Sachs, Jefferies, Morgan Stanley, Nomura, UBS, and Citibank.

[2] I recently called for more defendant admissions in CFTC settlements.  See Statement by Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency in Settlements (Sept. 19, 2022), available at

[3] The CFTC's penalties are substantial-$711 million across the 11 banks-and supplement SEC penalties of similar magnitude, bringing total penalties to more than $1.8 billion.  The fines individually dwarf the next largest penalties assessed for records-related violations.

[4] It is important to distinguish that the illegal conduct was not the occasional use of texting for convenience in the post-pandemic world.  In fact, much of the illegal conduct occurred pre-pandemic.

Bill Singer's Comment

The SEC took a victory lap by trumpeting its sanctions, for example:

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 were censured. The firms also agreed to retain 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.

Shamefully, the SEC Release fails to disclose that all Respondents were granted a Disqualification Waiver -- and even more despicably, that term is never used in the public disclosure because the SEC sanitized the waiver by citing it in the release as an "SEC Order - Certain Broker Dealer Practices." Certain Broker Dealer Practices? That's how the SEC describes an Order granting a Disqualification Waiver? 

SIDE BAR: For a towering statement by a former SEC Commissioner on the SEC's history of routinely granting disqualification waivers, read

I dissent from the Commission's Orders, issued on May 20, 2015, that granted the following waivers from an array of disqualifications required by federal securities regulations:

1) UBS AG, Barclays Plc, Citigroup Inc., JPMorgan Chase & Co. ("JPMC"), and the Royal Bank of Scotland Group Plc ("RBSG"), waivers from the provisions under Commission rules that automatically make them ineligible for well-known seasoned issuer ("WKSI") status;

2) UBS AG, Barclays, and JPMC waivers from automatic disqualification provisions related to the safe harbor for forward-looking statements under Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934; and

3) UBS AG and three Barclays entities waivers from the automatic Bad Actor disqualification provided under Rule 506.
. . .

Allowing these institutions to continue business as usual, after multiple and serious regulatory and criminal violations, poses risks to investors and the American public that are being ignored.  It is not sufficient to look at each waiver request in a vacuum. 

. . .

It is troubling enough to consistently grant waivers for criminal misconduct.  It is an order of magnitude more troubling to refuse to enforce our own explicit requirements for such waivers.   This type of recidivism and repeated criminal misconduct should lead to revocations of prior waivers, not the granting of a whole new set of waivers.  We have the tools, and with the tools the responsibility, to empower those at the top of these institutions to create meaningful cultural shifts, yet we refuse to use them.

In conclusion, I am troubled by repeated instances of noncompliance at these global financial institutions, which may be indicative of a continuing culture that does not adequately support legal and ethical behavior.  Further, I am concerned that the latest series of actions has effectively rendered criminal convictions of financial institutions largely symbolic.  Firms and institutions increasingly rely on the Commission's repeated issuance of waivers to remove the consequences of a criminal conviction, consequences that may actually positively contribute to a firm's compliance and conduct going forward. . . .

I applaud CFTC Commissioner Romero's compelling statement. Unfortunately, absent from the her remarks is an acknowledgement that the SEC granted all of its Respondents a Disqualification Waiver in the very same breath that it rang up its regulatory cash register. To the extent the CFTC did not move in lock step with the SEC in granting waivers, bravo! That the fines imposed by CFTC "dwarf the next largest penalties," as the CFTC Commissioner notes in Footnote 3 ought not be taken for more than it is -- an admission that regulation has become somewhat sterile and tends to confuse fining miscreants for reforming their behavior. In reality, the fines will likely come out of the pockets of the shareholders of the public companies at issue rather than from those in the C-Suites or those responsible. As Commissioner Stein so aptly lamented, it's business as usual on Wall Street and at the industry's federal regulator.

UPDATE: September 29, 2022

In apparent response to the criticism in this article, the SEC deleted the reference at the very bottom of the extensive column on the right side of the SEC Release The deleted reference was to "SEC Order - Certain Broker Dealer Practices" [which had the embedded link to:]. The link remains as a standalone under the page heading "Other Commission Orders, Notices, and Information''; however, the document's title has been revised to "33-11109  Sep. 27, 2022 Certain Broker-Dealer Practices (Waiver Order)."

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