The SEC Now Charges 12 Advisors $1.3M For Recordkeeping Violations

The SEC now charges 12 advisors $1.3M for recordkeeping violations after failing to maintain and preserve specific electronic communications.

The Securities and Exchange Commission (SEC) has announced charges against 12 municipal advisory firms for failing to properly maintain and preserve essential electronic communications.

In response to these violations, the firms have collectively agreed to pay over $1.3 million in civil penalties to settle the charges, according to a press release.

Each firm admitted to the facts outlined in the SEC’s orders and acknowledged that their actions violated federal securities laws regarding recordkeeping.

As part of the settlement, the firms have committed to enhancing their compliance policies and procedures to rectify these issues moving forward.

The specific civil penalties for each firm have been detailed below:

• Acacia Financial Group Inc. agreed to pay a civil penalty of $52,000;
• Caine Mitter and Associates Inc. agreed to pay a civil penalty of $94,000;
• cfX Inc. agreed to pay a civil penalty of $42,000;
• CSG Advisors Inc. agreed to pay a civil penalty of $40,000;
• Kaufman Hall & Associates LLC, together with Ponder & Company, agreed to pay a civil penalty of $324,000;
• Montague DeRose & Associates LLC agreed to pay a civil penalty of $40,000;
• PFM Financial Advisors LLC agreed to pay a civil penalty of $250,000;
• Phoenix Advisors LLC agreed to pay a civil penalty of $40,000;
• Public Resources Advisory Group Inc. agreed to pay a civil penalty of $184,000;
• Specialized Public Finance Inc. agreed to pay a civil penalty of $250,000; and
• Zions Public Finance Inc. agreed to pay a civil penalty of $47,000.

This enforcement action underscores the SEC’s focus on ensuring that municipal advisors adhere to proper communication and recordkeeping standards, reinforcing the importance of compliance in the financial advisory sector.

“The books and records requirements are critical to facilitating Commission inspections and examinations of municipal advisors and in evaluating a municipal advisor’s compliance with the applicable federal securities laws,” said Rebecca Olsen, Deputy Chief of the SEC’s Division of Enforcement Public Finance Abuse Unit.

“Municipal advisors are encouraged to assess their recordkeeping practices relating to off-channel communications.

Firms that believe their practices do not comply with the securities laws are encouraged to self-report to the SEC’s Enforcement staff.”

The SEC’s investigations were conducted by members of the Enforcement Division’s Public Finance Abuse Unit, including Kevin B. Currid, Brian Fagel, David Zhou, Sally Hewitt, Kristal P. Olson, Jonathan Grant, Silvana A. Quintanilla, and Louis Randazzo.

Each of these matters was supervised by Ms. Olsen, per the report.

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Also Read: NYSE Is Now Reporting A GameStop Price Glitch

Other Market News Today

Citadel is now fighting the SEC on the market surveillance system known as CAT, which enables regulators to track trading activity.

Citadel Securities is spearheading an industry pushback against a proposal from exchanges like the New York Stock Exchange and Nasdaq that would require traders to help fund a new market surveillance system, known as the Consolidated Audit Trail (CAT), which has already incurred nearly $1 billion in costs.

Brokers are urging regulators to halt new billing schedules that would mandate their financial contributions to the CAT system, which serves as a comprehensive record of all activity in U.S. equities and options markets—often compared to a “Hubble Telescope” for financial markets.

Until now, exchanges have covered the costs of the CAT.

However, if the U.S. Securities and Exchange Commission (SEC) does not intervene soon, brokers will start receiving bills from the exchanges beginning Tuesday, as the exchanges seek to recover a portion of the promised costs.

The CAT was established after the 2010 flash crash, which made it difficult for investigators to determine the cause of a market drop that erased nearly $1 trillion in value.

The system has been fully operational since 2022, according to Financial Times.

The SEC directed national exchanges and Finra, which oversees brokers, to create the CAT, with the expectation that the trading industry would eventually bear a significant share of the expenses.

Last year, the SEC approved a plan requiring broker-dealers to cover two-thirds of the costs, while exchanges would cover the rest.

Initial payment plans were submitted in January but were suspended pending review, which has yet to be completed.

Last month, exchanges and Finra withdrew their initial payment plans and submitted revised ones with minor changes.

Unless the SEC issues another suspension, brokers will receive bills in October based on September’s trading volumes.

Several regulatory filings and letters from industry groups, including Citadel Securities, Virtu Financial, the American Securities Association, and Sifma, have urged the SEC to suspend the billing process.

Citadel Securities, led by Ken Griffin, warned the SEC that it might seek legal action if the billing is not halted by next week.

Also Read: “The Game is Rigged”, Says Ex-Citadel Data Scientist

The company criticized the new filings as an attempt to extract significant amounts from broker-dealers.

Citadel previously challenged the legality of the CAT funding model in a Florida court, in partnership with the ASA.

That case is still ongoing.

Exchange representatives, including those from the NYSE, Nasdaq, and Cboe Global Markets, declined to comment, as did Finra and the SEC.

However, exchange officials noted that they were instructed by the SEC to implement the CAT and that cost-sharing with the industry was always part of the plan.

They argue that increasing trading volumes have contributed to rising costs.

One executive involved in the CAT project stated, “We’re just recovering our costs. There’s no profit here,” emphasizing that the industry had been resistant to funding the system.

Brokers have raised concerns not only about the costs but also about accountability for any costly missteps during the CAT’s development, as well as the system’s annual operating budget, which now nears $200 million—about five times the original estimates from 2016.

In a market where big player such as Citadel have manipulated prices in their favor, reported inaccuracies, and have taken advantage of the industry — opposing any regulatory means that track its trading activity has been part of their mission for years.

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Also Read: BlackRock Is Now Hit With 54 Counts of Securities

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