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Private-Equity Firms Negotiate Settlements with SEC Over Record-Keeping Violations

S.J. Steinhardt
Published Date:
May 28, 2024

Some of Wall Street’s biggest private-equity firms have disclosed in their quarterly filings that they are negotiating settlements with the Securities and Exchange Commission (SEC) as a result of the agency’s investigation of their record-keeping violations, The Wall Street Journal reported.

Blackstone, TPG and Carlyle Group are three of the firms cooperating with the SEC. They are discussing potential resolutions with agency enforcement staff.

The investigations concern their employees’ use of prohibited communication channels, such as WhatsApp. In many cases, according to the SEC, the firms messages cannot be collected because they were exchanged on employees’ personal devices. Such actions violate SEC rules, under which financial firms are required to preserve and monitor their employees’ written communications, creating a paper trail for regulators to monitor and enforce compliance with federal laws.

Another private-equity firm, KKR, disclosed that it is subject to the SEC’s record-keeping probes and is cooperating.  Also, Apollo disclosed that some of its investment adviser subsidiaries have received a request for information and documents from the SEC for the record-keeping investigation.

The private-equity firms’ disclosures come as U.S. agencies have continued their crackdown on off-channel communications violations over the past few years. Since December 2021, the SEC  has filed charges against 60 firms and imposed more than $1.7 billion in fines for failing to maintain and preserve electronic communication, a senior enforcement official said in April, the Journal reported.

In February, the SEC imposed fines on another group of brokerages to settle claims that their brokers or money managers used messaging apps that violated record-keeping rules. Late last year, Gurbir Grewal, director of the SEC’s enforcement division, said that the harsh fines imposed on record-keeping violations have led to policy and procedures changes at firms.

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