The U.S. Securities and Exchange Commission (SEC) announced on Friday that it has fined ten financial firms, including Interactive Brokers (NASDAQ:IBKR) and Robert W. Baird & Co., a collective $79 million for widespread and longstanding failures to maintain and preserve electronic communications. This comes as part of the SEC's ongoing crackdown on recordkeeping violations related to off-channel communications.
Interactive Brokers, with a market cap of $36.73B according to InvestingPro, was hit with a $35 million fine. This comes despite the firm's strong performance, with a revenue growth of 58.42% and a gross profit margin of 89.78% as per the latest data from InvestingPro. Moreover, the firm has been profitable over the last twelve months and has maintained dividend payments for 14 consecutive years, as highlighted by InvestingPro Tips.
The SEC's investigations, dating back to 2019, found pervasive and longstanding off-channel communications at the ten firms. Employees at these companies communicated about business matters via private text messages and failed to preserve a large majority of these communications, thereby violating securities laws.
Milwaukee-based Robert W. Baird was levied a $15 million penalty. Chicago-based William Blair & Company and an affiliate were fined $10 million, Nuveen Securities was penalized $8.5 million, and Cincinnati-based Fifth Third Securities had to pay $8 million.
New York-based Perella Weinberg Partners, along with its affiliates Tudor, Pickering, Holt & Co. Securities and Perella Weinberg Partners Capital Management, were also implicated in the SEC's allegations. Perella Weinberg Partners stood out for its cooperation with regulators. The firm brought its employees' messaging failures to the SEC's attention on its own and was consequently issued a significantly smaller fine of $2.5 million.
"There are real benefits to self-reporting, remediating and cooperating," said Gurbir Grewal, the director of the SEC's division of enforcement.
The accused firms have admitted that their employees used messaging services like WhatsApp and GroupMe for discussing investment advice since at least 2019. The SEC regulations require firms to keep records of all such communications. This is particularly relevant in light of InvestingPro Tips, which indicate that high earnings quality, with free cash flow exceeding net income, can be a key factor in assessing a company like Interactive Brokers.
The latest enforcement action follows similar actions by the SEC against eleven Wall Street firms in August, which resulted in collective fines of $549 million. This ongoing crackdown by the SEC aims to prevent firm employees from using encrypted messaging services to discuss business matters.
The firms involved in the SEC's latest sweep have agreed to retain independent consultants to review their internal policies and procedures on record retention and electronic communications. They have also committed to adjust their compliance policies to meet the recordkeeping provisions of the Securities Exchange Act of 1934.
Investors looking for more insights into companies such as Interactive Brokers can access additional tips and real-time metrics on InvestingPro. This comprehensive resource provides valuable information for making informed investment decisions. For instance, Interactive Brokers currently trades at a P/E ratio of 17.55 and a PEG ratio of 0.2, indicating potential value for investors. For more information, visit InvestingPro.
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