Private-equity giants near settlements with SEC over texting violations

Under the US Securities and Exchange Commission’s rules, financial firms are required to preserve and monitor their employees’ written communications, which creates a paper trail for regulators to monitor and enforce compliance with federal laws. (Bloomberg)
Under the US Securities and Exchange Commission’s rules, financial firms are required to preserve and monitor their employees’ written communications, which creates a paper trail for regulators to monitor and enforce compliance with federal laws. (Bloomberg)

Summary

Blackstone, TPG and Carlyle Group disclosed that they have been cooperating with the Securities and Exchange Commission.

Some of Wall Street’s biggest private-equity firms said they are negotiating settlements with the U.S. markets regulator over their employees’ use of banned communication channels.

Blackstone, TPG and Carlyle Group disclosed in their latest quarterly filings that they have been cooperating with the U.S. Securities and Exchange Commission’s record-keeping investigations and have begun discussions with the agency’s enforcement staff about potential resolutions.

Under SEC rules, financial firms are required to preserve and monitor their employees’ written communications, which creates a paper trail for regulators to monitor and enforce compliance with federal laws.

Firms whose employees talk about business over prohibited mobile apps such as WhatsApp risk violating those rules if they don’t retain or monitor those messages. In many cases, according to the SEC, firms haven’t collected those messages because they were exchanged on employees’ personal devices.

The three firms said they had received requests for information related to the retention of electronic business communications, including text messages, in October 2022 as a part of an industrywide sweep. They subsequently disclosed the probes in their respective securities filings, The Wall Street Journal previously reported.

A SEC spokesperson said the agency doesn’t comment on the existence or nonexistence of a possible investigation.

Spokespeople for Blackstone, Carlyle and TPG all declined to comment.

Blackstone, in its latest quarterly report filed in early May, said its financial results for the first quarter of 2024 “include an accrual for the estimated liability related to this matter." TPG, in a quarterly filing filed in May, also said it recorded for the period ending March 31 a contingent liability related to the probe.

It remains unclear from filings how much the two firms have set aside for potential settlements with the SEC.

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. The buyout firm added that there was no assurance that a settlement would be reached.

Other private-equity firms have also disclosed probes into their record-keeping practices related to text messages, without providing updates on potential resolutions. KKR said it is currently subject to the SEC’s record-keeping probes and is cooperating with the agency, according to its latest quarterly report.

Apollo said some of its investment adviser subsidiaries have received a request for information and documents from the SEC for the record-keeping investigation, its latest quarterly filing showed.

A spokeswoman for KKR and a spokesman for Apollo declined to comment beyond the filings.

The private-equity firms’ disclosures come as U.S. regulators have continued their crackdown on off-channel communications violations over the past few years. The SEC since December 2021 has filed charges against 60 firms and imposed more than $1.7 billion in fines for failing to maintain and preserve electronic communication, a senior enforcement official said in April.

The enforcement has moved on from big banks and broker dealers to other financial firms, including credit-rating firms. The SEC in February imposed fines on another round of brokerages to settle claims their brokers or money managers used messaging apps that violated record-keeping rules.

Gurbir Grewal, director of the SEC’s enforcement division, said late last year that the harsh fines imposed on record-keeping violations have led to policy and procedures changes at firms.

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