WASHINGTON — Many of Wall Street’s biggest banks are on the verge of agreements to pay up to $200 million each and admit that their employees’ use of personal messaging apps like WhatsApp broke the law, according to those with the Matter of familiar persons.
The Securities and Exchange Commission and the Commodity Futures Trading Commission plan to announce the deals with the banks by September 30, the end of the government’s current fiscal year. That would add the penalties to the government’s annual enforcement statistics.
SEC and CFTC spokesmen declined to comment. Bank spokesmen declined to comment. A spokesman for UBS could not be reached.
The agencies’ investigations looked into how traders and brokers used encrypted apps like WhatsApp to discuss investment terms, client meetings and other deals. SEC and CFTC rules require brokerage firms to retain and monitor the written communications of their employees, creating a paper trail for regulators checking compliance with investor protection laws. Services like WhatsApp and Signal prioritize privacy and can be set up to automatically delete messages after a few days or after a chat has been read.
Dealers and brokers may not use such products to conduct the Company’s business. The practice became more common — and harder to spot — in the early stages of the pandemic, when employees were working entirely from home.
Regulators and compliance professionals also worry that diversifying a bank’s business across personal and business devices increases the risk that hackers will find a way to steal lucrative trade secrets, said Mark Berman, a regulatory advisor at CompliGlobe who oversees foreign companies, which must follow the SEC rules.
The Securities and Exchange Commission is investigating whether regulated money managers have violated the same written notice retention rules.
Photo: Ting Shen for The Wall Street Journal
Fines in excess of $100 million are outliers in both the Democratic and Republican governments, generally imposed only on the largest market participants and often based on investor compensation claims. The median fine imposed in fiscal 2020, the Trump administration’s last full year, was $194,000.
The records enforcement initiative likely won’t end at the big banks, some of the people said, because the SEC is now investigating whether regulated money managers have broken the same rules.
“The fines are hefty to try to act as a deterrent,” Mr. Berman said. “On the other hand, the Democrats are happy to increase the size of the fines. In this case, it’s probably the former because they have to send a really strong message.”
The expected settlements follow a deal the brokerage arm of JPMorgan Chase & Co. reached with the SEC and CFTC in December, the people said. JP Morgan Securities LLC paid $200 million — $125 million to the SEC and $75 million to the CFTC — for failure to exercise due diligence in keeping records. The SEC said the bug was “company-wide and affected employees at all levels of authority.”
JPMorgan’s policies prohibited the use of WhatsApp for business purposes. But regulators identified over 100 people at JP Morgan Securities and tens of thousands of messages improperly kept by the firm, according to the SEC’s settlement order.
Bank of America, Morgan Stanley and Barclays announced last month that they would pay $200 million, the same amount as JPMorgan, to complete the investigation. Barclays said in a securities filing that regulators found its business units “failed to meet their respective record-keeping and oversight obligations when such communications were sent or received by employees through electronic messaging channels that had not been authorized by the bank for business use.” Employee.”
Several other banks have said they are negotiating with the SEC and CFTC to settle the investigations, but have not said how much they would pay. Goldman Sachs, for example, said this month it was “in advanced discussions with the SEC and CFTC” to settle the investigation. A spokeswoman for Goldman Sachs declined to comment.
The SEC’s push for large fines has angered many criminal defense attorneys and legal executives at the banks, according to people familiar with the negotiations. This is because the research does not claim any fraud or harm to customers.
SEC officials said the practice of using apps for personal messaging is inappropriate and undermines their ability to conduct investigations. In the JPMorgan settlement, the SEC said the bank didn’t always search its employees’ personal devices when responding to subpoenas and other requests for information.
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