If you work for a financial institution regulated by the SEC or CFTC, answering your boss’ work related text could cost you dearly.
In September 2022, the SEC announced fines of over $1 billion against fifteen broker-dealers and one investment advisor for their employees’ pervasive and longstanding use of “off channel” communications platforms such as WhatsApp, Signal, and iMessage, in clear violation of their recordkeeping and preservation obligations. Since that watershed moment, actions against major financial institutions have continued to pile up, including nearly $550 million in fresh SEC and CFTC fines this summer – bringing the total fines levied to more than $2.2 billion.
The preservation of business-related communications is essential for the SEC’s and CFTC’s oversight of our securities and commodity markets, but it appears that many financial institutions were shirking, or flat out ignoring their responsibilities. In fact, as several of the SEC’s orders have noted, the use of off channel communications has been widespread, longstanding, and even encouraged by managing directors and supervisors who were tasked with enforcing preservation rules.
More than $2.2 billion in fines has forced the industry to stand up and take notice. But alarmingly, in many situations employees are now being forced to bear the brunt of their employer’s pervasive lack of oversight. For example, earlier this year, a major bank penalized employees who communicated through WhatsApp and other unapproved platforms, with fines ranging from several thousand dollars to more than $1 million per employee.
More importantly, employees at broker-dealers, swap dealers, and other covered entities are also being fired for cause for such actions, in addition to receiving bad U-5s which could result in fines or prevent them from working in the industry.
If you’re an employee at a broker-dealer, swap dealer or covered entity, what should you do when your supervisors or co-workers text you work-related messages on non-approved communication platforms?
The answer, in many cases, is to reach out to an experienced employment attorney for guidance if you think the company is not following the SEC or CFTC guidance.
Several state and federal laws, including New York Labor Law 740, New Jersey’s Conscientious Employee Protect Act, and Sarbanes-Oxley, protect employees who raise concerns to their companies about what they reasonably believe to be violations of law. Other laws, like the Dodd-Frank Act, protect whistleblowers who report potential violations to the SEC and CFTC. Determining whether it makes sense to raise concerns about off-channel communications to your boss, to the government, or both is a challenging question. An experienced attorney can analyze your situation and help you determine the best course of action to help you avoid running afoul of regulators while also ensuring you’re protected against retaliation just for trying to follow the law.
Everyone’s situation is different, and the risks and rewards must be weighed carefully against each other. If your colleagues are still texting about work, or if you have other concerns regarding potential violations of law and whether and how to speak up, you can contact attorneys at Outten & Golden’s Whistleblower & Retaliation and Executives and Professionals Practice Groups.