RIA firm charged by SEC for recordkeeping violations, avoids penalty

A registered investment advisor in Texas has avoided a penalty by the Securities and Exchange Commission despite violating recordkeeping rules.

Atom Investors LP failed to maintain and preserve records of off-channel communications for more than three years, but only discovered its error when it was served with a subpoena by the SEC relating to an investigation into a third party.

The firm realised the gaps in its recordkeeping while preparing its response to the subpoena as some of the information requested was not available. The missing records included communications relating to the buying and selling of securities.

“This enforcement matter highlights the risk to investors when firms don’t comply with their recordkeeping obligations: because of Atom Investors’ longstanding failures to preserve required communications, including communications by Atom Investors’ senior personnel, we were hampered in our investigation into a third party,” said Gurbir S. Grewal, director of the SEC’s Division of Enforcement.

Atom self-reported the conduct to the SEC and the agency’s order found that the firm violated the recordkeeping provisions of the federal securities laws. Without admitting or denying the SEC’s findings, Atom agreed to cease and desist from further violations of the securities laws and to a censure.

However, the firm was not issued with a penalty due to its proactive approach in making the regulator aware of the violations, its swift remediation of the non-compliance, and its substantial cooperation with the SEC in its investigation into the third party.

“This resolution shows that the full benefits of cooperation are available in recordkeeping matters. Atom Investors’ self-reporting and prompt remedial efforts weighed heavily in the Enforcement Division’s decision to recommend that the Commission not impose a penalty, which the Commission accepted. This resolution should serve as a model for other investment advisors that are not currently in compliance with federal recordkeeping requirements.”