(Article from Registered Funds Regulatory Update, July 2024)
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The SEC recently settled charges against a registered investment adviser for recordkeeping failures related to its employees’ use of personal devices in connection with firm business.
According to the Order, from at least January 2019 through December 2021, the RIA’s employees communicated about company business internally and externally through their personal text messages and other non-firm messaging platforms without maintaining or preserving the off-channel communications in violation of the federal securities laws and the RIA’s policies and procedures. The Order stated that the failures involved employees at various levels of authority, including supervisors and senior employees. The Order noted that in one instance, three senior employees engaged in off-channel communications on personal devices that were set to automatically delete messages after 30 days. The Order stated that during this time, the RIA responded to SEC subpoenas for documents and records requests and the firm’s recordkeeping failures would have likely impacted the SEC’s investigations and ability to carry out regulatory functions.
The SEC found that the RIA violated certain recordkeeping provisions of the Advisers Act and failed to reasonably supervise with a view to preventing and detecting violations. Admitting to the SEC’s findings and acknowledging that its conduct violated the federal securities laws, the RIA agreed to a cease-and-desist order, a censure, and an order to retain a compliance consultant to, among other things, conduct comprehensive reviews of the firm’s policies and procedures. The RIA also agreed to a $6.5 million civil monetary penalty.
In the Matter of Senvest Management, LLC, SEC Admin. File No. 3-21900 (Apr. 3, 2024), available at: https://www.sec.gov/files/litigation/admin/2024/ia-6581.pdf.