The latest enforcement action by the Securities and Exchange Commission (SEC) targets banks, broker-dealers, and investment advisers active in the cryptocurrency markets.

In its zeal to crack down on decentralized finance (DeFi) and bring firms’ operations under more direct oversight, the SEC has brought charges for “off-channel communications” on the part of the firms’ employees.

The SEC Tightens Oversight of Communications

The agency announced on Friday morning that it had brought charges against ten firms. Among them is Perella Weinberg, the bank advising bankrupt crypto exchange FTX in its restructuring.

Other respondents include Interactive Brokers Corp., Robert W. Baird & Co., William Blair & Company, Nuveen Securities, and Fifth Third Securities. Interactive Brokers is highly active in the crypto space, offering low commissions and 24/7 trading on its website. The others have varying degrees of exposure to crypto.

The respondents will not challenge the SEC in court. They have chosen to settle. Besides paying a total of $79 million in penalties, the firms have agreed to adopt new compliance policies.

The SEC took issue with the use of electronic communications at these firms and the failure to keep complete records of them. According to the agency, its probe of these firms uncovered “pervasive and longstanding off-channel communications” at all the firms.

Employees at the firms used text messaging to communicate about business matters, including some relating to investment advice, the SEC charged. In the agency’s view, this conduct was not in keeping with the Securities Act of 1934. The SEC also charged Baird, William Blair, Fifth Third, and Perella Weinberg with violating recordkeeping provisions of the Investment Advisers Act of 1940.

The Persistence of Regulatory Overreach

The SEC has used the cudgel of reporting requirements to bring firms of many sizes and profiles more directly under its oversight.

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Author: Michael Washburn

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