The WSJ reported that Blackstone, TPG and Carlyle Group have disclosed in their latest quarterly filings that they have been cooperating with the SEC in its recordkeeping investigations and have begun discussions with the agency’s enforcement staff about potential resolutions.
The three firms first disclosed the probes back in 2022 after receiving requests for information related to the retention of electronic business communications, including text messages, from the SEC back in October of that year. That request came as a part of an industrywide sweep being conducted by the securities watchdog at the time.
In its quarterly report filed in May, Blackstone said its financial results for the first quarter of 2024 “include an accrual for the estimated liability related to this matter.” TPG, in its quarterly filing filed in May, also said it recorded for the period ending March 31 a contingent liability related to the probe.
The SEC has imposed more than $1.7 billion in fines for failing to maintain and preserve electronic communication.
Carlyle, in its quarterly filing on May 7, said the SEC has been looking into its retention of business communications sent in texts and on messaging apps such as WhatsApp and WeChat, noting that there was no assurance that a settlement would be reached.
Two other PE firms – KKR and Apollo – reported in their recent filings that they are subject to investigations by the SEC related to business-related electronic communications without mentioning anything about a possible settlement or estimated liabilities.
KKR said it was cooperating with the agency, and Apollo noted that a few of its investment advisory subsidiaries had received the request for information.
Crackdown on off-channel comms
The private-equity firms’ disclosures are further evidence of a targeted and determined crackdown on off-channel communications violations over the past few years by the SEC and Commodity Futures Exchange Commission.
The SEC since December 2021 has filed charges against 60 firms – from broker-dealers to banks to credit-rating agencies – and imposed more than $1.7 billion in fines for failing to maintain and preserve electronic communication. (Our comprehensive list of fines is regularly updated).
In these enforcement actions, the SEC has cited firms’ failure to abide by their own policies and procedures on capturing and retaining such communications, as well as noting that not having access to the records could have inhibited the SEC in an investigation of potential fraud or other threat to investors.
In its guidance documents, public remarks by its officials, examination priorities and end-of-the-year enforcement summary, the SEC has (along with other regulators) has underscored the critical importance of preserving these types of communications as part of the business’s practice of maintaining adequate books and records.
GRIP comment
Compliance and legal professionals at all financial services businesses should take steps to understand how their personnel actually communicate with others, appreciating that reality could be murkier than some employees claim.
Hybrid workforces and speedy transactions made on mobile devices mean that businesses must go beyond attestations and investigate all of the options for electronic messaging that personnel could be using.
A technology solution for capturing and archiving the messaging is critical. But even more critical are the policies and procedures the business creates, updates and requires every employee to follow so it has a roadmap for how it will preserve such records, evaluate them and provide them to a regulatory agency, as needed.
Keep in mind that these are still just regulatory filings and charges and settlements have not been brought, and KKR and Apollo did not mention settlement negotiations at all.
What we know for certain is this, though: Companies can’t just wait until an enforcement action happens to them to change their approach to safeguarding and supervising such communications adequately.