The SEC denied a motion to modify or amend settlements it inked with 16 financial firms over their failure to keep records of off-channel communications, noting that the agency and courts have long emphasized a strong interest in maintaining the finality of settlements.

The majority of commissioners said just because other firms have received better terms from the SEC more recently in other cases, with other parties, this is not reason enough to modify the deals.

Commissioner Hester Peirce dissented.

Motion to modify

The 16 firms (listed below) noted that they had signed offers of settlement with the SEC, admitting to certain violations related to their employees’ communications on personal devices (or “off-channel” ones), agreeing to undertake certain compliance initiatives to remediate the violations.

The firms sought to modify their settled orders, arguing that theirs should align with more recent SEC settlement terms, and they asked to stay the effectiveness of their compliance undertakings pending consideration of this motion.

The specific modifications in the settled orders they sought are:

• removing the requirement that they engage an independent compliance monitor for approximately two years, replacing that requirement with a one-time internal audit;
• removing a requirement that they report employee discipline regarding off-channel communications to the SEC for two years;
• removing the SEC’s order that they comply with their undertakings, which they argue requires them to file a Membership Continuation Application with FINRA and submit to heightened FINRA supervision for six years.

No compelling reason

In denying the motion, the SEC pointed out that the SEC and judiciary “have long emphasized the ‘strong interest’ in maintaining the finality of settlements.” The SEC said that parties therefore generally demonstrate “compelling” or “extraordinary” circumstances to modify a settled order.

The majority of the Commission believes the parties have made no such showing.

“The respondents negotiated and made a choice to accept the terms of their orders, accepting the risk that comparable cases later could reach different outcomes.”

SEC

“In short, the decision to settle early carries both an inherent risk and potential benefit: Though the settling party must act with relatively less information than those that settle later, it avoids the time and expense of further negotiation and litigation. Settlor’s remorse – and a desire to revisit that risk calculus – does not justify upsetting a final, agreed-upon settled order,” the SEC said. 

The SEC said it was not persuaded by their firms’ claims that they are being penalized for settling earlier than other respondents.

“We do not understand this argument to have a different legal basis than those already discussed; the respondents negotiated and made a choice to accept the terms of their orders, accepting the risk that comparable cases later could reach different outcomes. Respondents also provide no evidence that the commission sought what the respondents claim to be more severe terms because they settled earlier than other similar parties.”

In responding to several instances in which the agency had modified some settlements in the past, the SEC said those cases were “inapposite or inapplicable,” since one was was altered due to “particular circumstances,” and none of them being altered to “equalize” its settlement terms with other previously reached.

Peirce’s dissent

In her dissenting opinion, Commissioner Hester Peirce said the SEC should take the “unusual but warranted step” of modifying the settlement orders, partly because she saw little difference between the allegations against the 16 firms and others.

“Why must the broker-dealer firms that settled before January 2025 submit continuing membership applications to FINRA and be subject to costly heightened supervision plans while the broker-dealer firms that settled in January 2025 are not?” Pierce wondered.

She makes this observation because the 12 settlements at the end of the SEC’s off-channel communications sweep of cases did not include the same undertakings as the earlier ones, calling those later ones “less draconian and costly.”

In that vein, Peirce pointed out that the Enforcement Division does not contest the assertion the firms make that FINRA’s rulings heightened the requirements to which they are subject (thanks to their settlement orders), and that this imposes a costly obligation in reality that goes beyond the parameters of the SEC’s requirements in their actual orders.

Background

Between December 2021 and October 2024 the SEC conducted enforcement “sweeps,” settling with more than 100 firms and fining them $2 billion in penalties. This was over allegations concerning a failure to reasonably supervise employees to ensure they were not communicating business off-the-books and, in the process, violating the firms’ recordkeeping obligations to the Commission.

The unapproved communications often involved unarchived tools (text, WhatsApp, WeChat, etc) that were not being captured and archived in accordance with SEC rules. The settlements involved broker-dealers (BDs), registered investment adviser (RIAs) firms, dually registered BDs and RIAs and nationally recognized statistical rating organizations.

At some firms, the violations occurred at all levels, including supervisors and management. In its orders, the SEC (and sometimes, the Commodity Futures Trading Commission when the cases involved firms they supervise) stressed that regulatory bodies depend on registered firms to maintain required business records so they can conduct meaningful examinations and protect the investing public.

List of firms

The cases and firms involved in this motion are listed below and details can be found in a handy chart on GRIP.

• William Blair & Co LLC and William Blair Investment Management – case number 3-21764;
• Robert W Baird & Co. Inc – case number 3-21768;
• Key Investment Services LLC and KeyBanc Capital Markets Inc – case number 3-21849;
• Oppenheimer & Co Inc – case number 3-21852;
• Hilltop Securities Inc – case number 3-21993;
• Piper Sandler & Co – case number 3-21994;
• Osaic Services Inc and Osaic Wealth Inc – case number 3-21997;
• Apex Clearing Corp – case number 3-21998;
• Truist Securities Inc, Truist Investment Services Inc, and Truist Advisory Services Inc – case number 3-22000;
• Raymond James & Associates Inc – case number 3-22002;
• RBC Capital Markets LLC – case number 3-22003;
• Ameriprise Financial Services LLC – case number 3-22004;
• LPL Financial LLC – case number number 3-22006;
• Regions Securities LLC – case number 3-22163;
• Invesco Distributors Inc and Invesco Advisers Inc – case number 3-22165; and
• Stifel Nicolaus & Co. Inc – case number number 3-22168.