To broaden its investigation into Wall Street’s use of private messaging apps, the U.S. securities regulator has gathered thousands of staff communications from more than a dozen large investment firms, according to four people with direct knowledge of the situation.

As part of its probe into Wall Street’s use of WhatsApp, Signal, and other forbidden messaging services for business purposes, the Securities and Exchange Commission (SEC) requested the businesses evaluate the communications internally.

Over $2 billion in fines were collected by authorities as a result of the two-year investigation into possible record-keeping rule violations that first focused on broker-dealers.

Though thousands of their staff communications have been reviewed, the SEC’s decision to do so has not previously been publicized, despite Reuters and other media outlets reporting that the investigation into “off-channel” communication had been extended to investment advisors. The inquiry has progressed, and the stakes have been raised for everyone involved by bringing the executives’ and firms’ actions under SEC scrutiny.

One source claimed, “It raises risk.” You feed the beast more by providing the SEC with additional information.

The people said that the SEC requested messages on personal devices or applications during the first half of 2021 that mention business in recent months as part of the newest investigation into more than a dozen investment advisors. A limited group of workers, up to a dozen in certain cases, including top executives, have been targeted.

Three persons with firsthand knowledge of the situation identified the companies as Carlyle Group (CG.O), Apollo Global Management (APO.N), KKR & Co (KKR.N), TPG (TPG.O), and Blackstone (BX.N), in addition to several hedge funds, including Citadel.

According to three persons, the executives allowed their companies or attorneys to copy texts from their phones and other devices. The SEC has since received the conversations, which discussed business.

The broker-dealer probes are in contrast to that. In certain circumstances, the SEC requested that businesses evaluate staff texts and inform the organization of how many times work was addressed. Three persons with knowledge of the past probes said that SEC employees merely looked at a sample of the communications themselves.

Due to the sensitivity of SEC inquiries, the sources spoke on the condition of anonymity.

The SEC is looking into the communications of at least 16 businesses, including Carlyle, Apollo, KKR, TPG, and Blackstone. The companies made no more comments or provided other information for this piece. A Citadel representative declined to respond to a question.

Charges do not always follow investigations conducted by the government and do not always prove misconduct.

Refusing to comment, an SEC representative. Gary Gensler, the chair, justified the examination of communications, stating that it is essential for the SEC to have record-keeping regulations in place to prevent fraud.

According to Jaclyn Grodin, a lawyer at Goulston & Storrs who is not engaged in the inquiry, “Now that they have all that data – it is very possible that the SEC will find compliance failures in there somewhere that have nothing to do with the off-channel communications record-keeping issues.”

SHE SAID THAT the SEC is putting more emphasis on concerns including preferential treatment of investors, conflicts of interest, and private fund fees and expenditures.

Shotting Fish

Compliance teams on Wall Street have struggled for years with the issue of monitoring employee communications. Employers subject to SEC regulation violate the rule requiring them to keep a record of all business conversations because businesses do not monitor personal messaging services.

According to a 2021 settlement where the bank agreed to pay the SEC $125 million to resolve charges over record-keeping lapses, the SEC started to focus on Wall Street’s record-keeping issue when JPMorgan Chase (JPM.N) failed to provide documents from at least 2018 regarding a separate investigation.

According to two individuals, the SEC launched an investigation into additional broker-dealers’ conversations in 2021 because it believed that off-channel talk about transactions, trading, and other business was common on Wall Street. One person claimed that because of the widespread misbehavior, the government has been “shooting fish in a barrel.”

The investigation is taking shape as Gensler’s standout Wall Street enforcement campaign, landing several high-profile companies like Wells Fargo (WFC.N), Bank of America (BAC.N), Goldman Sachs (GS.N), and Morgan Stanley.

According to some reports, it has brought in millions of dollars in legal expenses, with businesses employing hundreds of attorneys to defend the business and executives concerned about their exposure.

‘INVASIVE’

In October 2022, according to a previous Reuters article, the SEC started contacting investment advisers. The SEC first requested information on the record-keeping practices of investment advisors, similar to what it did with broker-dealers. The businesses were then instructed to conduct searches of a selected set of executives’ devices and provide a report detailing their findings.

But the companies refused, claiming that their record-keeping specifications were more stringent than those of broker-dealers.

The sector referred to the SEC’s request as “invasive” and voiced privacy concerns in a letter published in January and spearheaded by the Managed Funds Association. In the past, Bloomberg covered the letter.

Later, according to the sources, the SEC later ordered the financial advisers to turn over the texts. According to Jennifer Han, executive vice president and senior counsel for the MFA, the agency neglects crucial variations in the record-keeping standards for investment advisers.

She issued a statement in which she stated that “unilaterally expanding the rules by enforcement actions sidesteps due process and creates a dangerous precedent.”