Tuesday, April 23, 2024

RIA Senvest To Pay $6.5M for Text Message Record-Keeping Failures -Dlight News

Senvest Management, a New York-based advisory firm with $3 billion in client assets, will pay $6.5 million to settle Securities and Exchange Commission charges it failed to preserve business-related off-channel electronic communications.

From January 2019 through December 2021, Senvest employees communicated on business matters by text and other platforms not approved by the firm, the SEC said. And the firm failed to retain those communications. 

Senvest employees sent and received thousands of off-channel business-related messages during that period, including discussions between senior officers, managing directors and other employees. In one case, three senior firm officers and a managing director exchanged thousands of texts related to the firm’s business, including communications on specific securities recommendations for clients. 

At least three senior officers set their personal devices to automatically delete messages after 30 days, meaning the firm and the commission could never see them. According to the commission, the firm received and responded to several record requests and subpoenas during that period.

“The commission continues to focus on regulated entities’ compliance with the recordkeeping requirements,” SEC Fort Worth Office Director Eric Warner said about the charges. “Adherence to these requirements is essential for the commission to effectively exercise its regulatory oversight and enforce the federal securities laws.” 

Senvest declined to comment on this story.

The SEC and other federal regulators are in a multi-year campaign penalizing financial firms for supervisory lapses regarding off-channel electronic communications. 

In September 2022, the SEC fined 15 b/ds and one affiliated investment advisor $1.1 billion in total to settle charges of “widespread and long-standing” regulatory failures. The SEC argued firms violated record-keeping requirements, with employees (including those at senior levels) communicating via text messaging and platforms like WhatsApp.

The SEC settled similar charges against HSBC in March 2023 and Wells Fargo and BNP Paribas SA in August of that year. In September 2023, 10 firms, including Interactive Brokers, Robert W. Baird & Co., William Blair & Company and Nuveen Securities, agreed to pay $79 million to settle charges on similar issues. 

The SEC followed this group with 16 more in February, including Northwestern Mutual, Guggenheim Securities, Oppenheimer & Co., and Cambridge Investment Research. The firms collectively agreed to pay $81 million to settle similar charges.

In the Senvest order, the commission acknowledged the firm made several remedial efforts before the settlement. The firm provided employees with firm-issued cell phones to reduce off-channel communications, and these devices automatically upload communications into a firmwide archiving system. 

While Senvest didn’t admit nor deny the charges, it also agreed to a censure, a cease-and-desist and to hire a third-party compliance consultant to “conduct comprehensive reviews of its policies and procedures” relating to off-channel communications on personal devices.

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