SEC Fines Firms for Broker Texting

Is your broker sending you texts about your investments? They could be violating regulations that govern broker communications with investors. Brokers who communicate with investors using their personal, non-firm approved devices may avoid supervisory review because their communications are related to securities rule violations.

In February of 2024, the SEC announced that 16 firms had agreed to collectively pay $81 million to settle allegations regarding their alleged failure to preserve records of electronic communications.

The following firms were on the list:

• Northwestern Mutual
• Guggenheim Securities
• Guggenheim Partners Investment Management
• Oppenheimer & Co.
• Cambridge Investment Research
• Key Investment Services
• KeyBanc Capital Markets
• Lincoln Financial Advisors Corporation
• Lincoln Financial Securities
• S. Bancorp Investments
• The Huntington Investment Company
• Huntington Securities
• Capstone Capital Markets

Common Reasons for Texting Violations

There are several reasons a broker would want to circumvent their firm’s supervisors. The following are some of the most common:

• Brokers may want to solicit their clients for investments in unapproved outside businesses (also called “selling away”) or private securities transactions.
• Brokers may be attempting to resolve a customer dispute without reporting it to the brokerage firm. Brokers may attempt to settle with investors in order to avoid having a customer dispute on their BrokerCheck record.
• Brokers may want to contact their investors about matters that involves a violation of FINRA rules, such as a loan from a client or the broker’s status as a beneficiary or power of attorney.

FINRA Rules and Regulations Regarding Broker Texting

Two regulatory rules are typically cited in allegations regarding brokers’ misuse of text messages: FINRA Rule 3110 and FINRA Rule 4511.

• Brokerage firm representatives are required to supervise their brokers, including their communications with clients. FINRA Rule 3110 requires supervisors to review brokers’ correspondence with their clients to ensure that they comply with securities rules and regulations.
• FINRA Rule 4511 requires firms to maintain books and records. When brokers communicate outside of approved channels, there is no way for firms to preserve their communications with clients.

Examples of Texting Violations

Brokers may have to pay fines and face regulatory suspensions if FINRA uncovers evidence of unauthorized texts.

For example, a Wells Fargo broker consented to a $10,000 fine and a 30-day suspension following allegations that he exchanged numerous text messages with a customer regarding firm-related business. He allegedly did this in spite of having received a reminder from Wells Fargo to refrain from texting clients the year before.

Brokerage firm H.C. Wainwright consented to pay a $1.5 million fine following FINRA allegations that the firm failed to supervise and preserve its employees’ business-related text messages. FINRA alleged that at least 24 of the firm employees communicated about the firm business in text messages outside of the firm’s approved communication channels.

Additionally, the firm’s head of investment banking and the firm’s director of research allegedly routinely exchanged text messages about firm business with each other.  FINRA Rule 2241 requires firms to manage conflicts of interest that occur between research analysts and the brokerage firm. For instance, a firm’s research analyst might be motivated to publish research with especially optimistic projections for a security that the brokers want to sell in order to secure hefty commissions.

What Should I Do If My Broker is Texting Me Outside of Approved Channels?

If your broker has sent you text messages on a personal device, you should consider if any of their recommendations may have led to losses. Share any concerns you have with a securities attorney – our lawyers provide free case evaluations and do not collect any fees unless they win your case. There is a limited timeframe in which to submit a claim, so do not hesitate to call or email: (877) 600-0098 or info@kurtalawfirm.com.