Ongoing SEC Sweep Targets Advisers’ Off‑Channel Electronic Communication Recordkeeping Practices

In recent months, multiple private fund managers have received document request lists from the SEC related to electronic communications. That SEC sweep follows on the heels of a September 2022 announcement by the SEC’s Division of Enforcement that 16 broker-dealers had been fined a total of $1.1 billion for failing to properly retain off-channel communications. Those concerted SEC efforts are targeting a unique vulnerability of fund managers, given the prolonged period of remote work prompted by the coronavirus pandemic and the inherent technological difficulties of monitoring off-channel communications via WhatsApp and other mediums. The result is that even fund managers with thorough, robust practices may fall victim to the strict liability that accompanies those recordkeeping violations. To help fund managers prepare for SEC scrutiny, the Private Equity Law Report reviewed the latest SEC document request list - a copy of which is linked in this article - and interviewed several industry experts about the scope of the SEC’s sweep, its interplay with the previous broker-dealer sweep, important facets of the ongoing sweep and useful tips for how managers can prepare for unwanted scrutiny. This article summarizes key takeaways on the topic. See our three-part series on electronic communications: “Current Technological Landscape and Relevant Regulatory Measures” (Jul. 13, 2021); “Useful Training Techniques and Policies and Procedures to Adopt” (Jul. 20, 2021); and “Using Third Parties for Compliance, Mitigating Social Media Risks and Fulfilling Document Requests” (Jul. 27, 2021).

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