The SEC fined a broker-dealer $9.5 million for allegedly failing to safeguard material nonpublic information generated by its equity research analysts.
In its Order, the SEC alleged that the firm:
- failed to implement compliance procedures reasonably designed to prevent its equity research analysts from disclosing material, nonpublic information to its customers, and sales and trading personnel. The nonpublic information included analysts' unpublished views, changes in analysts' estimates, and short-term trading recommendations that were inconsistent with analysts' published long-term ratings. The SEC alleged that the firm's compliance procedures failed to prevent improper disclosures by equity analysts through morning calls, squawk-box communications, "idea dinners" and "non-deal road shows."
In related charges, the SEC claimed that the firm:
- violated the analyst certification requirement of Regulation AC by issuing a research report containing a "buy" recommendation that was inconsistent with the analyst's personal view that the company should be downgraded; and
- failed to preserve electronic communications on an internal messaging system, which were requested by the SEC during its investigation.
The investment bank also agreed to be censured and to cease and desist from committing or causing violations and any future violations of Sections 15(g) and 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 as well as Rule 501 of Regulation AC.
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