(Article from Registered Funds Regulatory Update, July 2025)
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The SEC recently denied motions to modify the settlement terms of 16 financial firms for record-keeping violations related to their use of messaging apps.
Since late 2021, the SEC has been investigating and charging financial firms for failing to properly maintain records of business communications sent through personal messaging apps, such as WhatsApp. In August 2024, the SEC announced that twenty-six broker-dealers and investment advisers would pay over $390 million to settle charges related to these recordkeeping failures, the largest of which was $50 million. To date, more than 50 firms have paid nearly $3 billion in penalties for similar violations.
The 16 petitioning firms did not ask to reduce their financial penalties. Instead, they asked the SEC to remove certain ongoing obligations they had agreed to as part of their settlements that were not required in more recent settlements with other firms. Among other things, they asked to be excused from hiring an outside compliance consultant for two years, reporting employee disciplinary actions regarding off-channel communications to the SEC for two years, and submitting to heightened oversight by FINRA for six years.
These firms argued that firms that settled more recently with the SEC received better settlement terms, including less burdensome obligations. One firm, for example, only had to conduct an internal audit rather than hire an outside consultant. On April 14, 2025, the SEC firmly rejected their requests, stating that “settlor’s remorse…does not justify upsetting a final, agreed-upon settled order.” The SEC emphasized that the firms had voluntarily agreed to their terms and that different terms in later settlements did not make the original settlement agreements unfair. Furthermore, unlike the petitioning firms, the firm that only had to conduct an internal audit had self-reported its violations prior to the SEC initiating its investigation, which was noted as a factor in it receiving more favorable terms according to the firm’s settlement order.
SEC Commissioner Hester Peirce disagreed with the SEC’s decision, arguing that the SEC should have granted the firms’ requests in light of the undisputed result that firms that settled earlier faced more stringent oversight requirements than firms that settled later, despite similar violations.
On June 30, 2025, the SEC again denied motions to modify the settlement terms of five financial firms for record-keeping violations related to their use of messaging apps. The petitioning firms raised primarily the same arguments previously rejected by the SEC, with four of the five firms asking the SEC to stay their undertakings while it considered their motions to modify. The SEC denied their motions for the same prior reasons and stated that “a party’s belief that subsequent parties negotiated better settlement terms is not a compelling circumstance that justifies altering the terms of a prior settlement.”
These cases highlight the SEC’s position on the finality of settlement agreements reflecting that once a firm agrees to settlement terms, it should expect to fulfill those obligations even if later settlements in similar cases contain different terms. The SEC’s decision also underscores the potential benefits of self-reporting violations. The split decision, with Commissioner Peirce dissenting, suggests there may be ongoing debate within the SEC about consistency in enforcement remedies, particularly as the SEC transitions under the leadership of newly-appointed SEC Chair Paul Atkins.
In the Matter of Certain Off-Channel Communications Settled Orders, Release No. 6874 (Apr. 14, 2025), available at: https://www.sec.gov/files/litigation/opinions/2025/34-102860.pdf.
In the Matter of Certain Off-Channel Communications Settled Orders, Release No. 6890 (June 26, 2025), available at: https://www.sec.gov/files/litigation/opinions/2025/34-103330.pdf.