SEC Crackdown on Off-Channel Communications Continues With Charges Against 12 More Adviser Firms
The U.S. Securities and Exchange Commission announced charges against 12 municipal advisers for failures by the firms and their personnel to maintain and preserve certain electronic communications. The firms agreed to pay combined civil penalties of more than $1.3 million to settle the SEC’s charges.
According to the SEC, a few examples of the firms’ violations include:
From at least July 2020 to December 2023, employees of Chicago-based Kaufman Hall & Associates and Ponder & Company (formerly headquartered in Brentwood, Tenn., before being acquired by Kaufman Hall) sent and received off-channel communications relating to municipal advisory activities but didn’t maintain or preserve these communications. Kaufman Hall’s and Ponder’s failures involved employees at various levels of authority, including both municipal adviser representatives and municipal adviser principals. According to the complaint, Kaufman Hall and Ponder also failed to implement and maintain a system to supervise the municipal advisory activities and, thus, achieve compliance.
From at least July 2020 to January 2024, employees of Philadelphia-based PFM Financial Advisors sent and received off-channel communications relating to municipal advisory activities but didn’t maintain or preserve these communications. PFM’s failures involved employees at various levels of authority, including both municipal adviser representatives and municipal adviser principals. According to the complaint, PFM also failed to implement and maintain a system to supervise the municipal advisory activities and, thus, achieve compliance.
From at least January 2020 to August 2023, employees of Austin, Texas-based Specialized Public Finance sent and received off-channel communications relating to municipal advisory activities but didn’t maintain or preserve these communications. Specialized Public Finance’s failures involved employees at various levels of authority, including both municipal adviser representatives and municipal adviser principals. According to the complaint, it also failed to implement and maintain a system to supervise the municipal advisory activities and, thus, achieve compliance.
Each of the 12 firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions of the federal securities laws, have begun implementing improvements to their compliance policies and procedures to address these violations, and agreed to pay the following civil penalties:
- Acacia Financial Group Inc., $52,000;
- Caine Mitter and Associates Inc., $94,000;
- cfX Inc., $42,000;
- CSG Advisors Inc., $40,000;
- Kaufman Hall & Associates LLC, together with Ponder & Company, $324,000;
- Montague DeRose & Associates LLC, $40,000;
- PFM Financial Advisors LLC, $250,000;
- Phoenix Advisors LLC, $40,000;
- Public Resources Advisory Group Inc., $184,000;
- Specialized Public Finance Inc., $250,000; and
- Zions Public Finance Inc., $47,000.
“The books and records requirements are critical to facilitating Commission inspections and examinations of municipal advisers and in evaluating a municipal adviser’s compliance with the applicable federal securities laws,” said Rebecca Olsen, deputy chief of the SEC enforcement division’s public finance abuse unit.
“Municipal advisers are encouraged to assess their recordkeeping practices relating to off-channel communications. Firms that believe their practices do not comply with the securities laws are encouraged to self-report to the SEC’s enforcement staff,” added Olsen.
As described in the SEC’s orders, the firms admitted that, during the relevant periods, they failed to maintain and preserve communications sent and/or received by their personnel relating to municipal advisory activity and that these communications were records required to be maintained and preserved under the federal securities laws. The failures involved personnel at multiple levels of authority, including supervisors.
The firms were each charged with supervision failures and with violating certain recordkeeping provisions of the Securities Exchange Act of 1934 and the rules of the Municipal Securities Rulemaking Board. In addition to the financial penalties, each of the firms was censured and ordered to cease and desist from future violations of the relevant recordkeeping provisions.
SEC’s actions against the 12 firms are part of its continuing crackdown on companies for electronic communications and recordkeeping violations. Earlier this month, it brought charges and cumulative fines of $49 million against six nationally recognized statistical rating organizations, or NRSROs, for significant failures by the firms and their personnel to maintain and preserve electronic communications – primarily in regard to their employees’ use of text messaging and messaging apps. And as previously reported by AltsWire, Ameriprise Financial Services LLC, Edward D. Jones & Co., L.P., and LPL Financial LLC were among 26 broker-dealers, investment advisers, and dually registered broker-dealers and investment advisers that the SEC charged with widespread and longstanding electronic and communications recordkeeping failures. The 26 companies were fined a total of $390 million.
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