Wall Street, WhatsApp, and Cell Phone Searches: Why This SEC Probe Has Sent Trading Firms Scrambling

The SEC has demanded that 100 traders at top firms turn over their cell phones for inspection. Enterprises are uneasy, as violating business communications standards could mean multimillion-dollar fines.

While the image of SEC investigations pushed by movies like the Wolf of Wall Street — think armed agents bursting onto the trading floor, seizing computers and shaking down offices, tackling traders and knocking over desks — the reality of regulatory crackdowns is far less dramatic. 

But last week’s raid might have been the exception when the SEC took quite a surprising step in its ongoing investigation into some of Wall Street’s most prominent industry titans.

100 cell phones at top firms: The largest-ever mobile phone probe of its kind

Top trading firms and financial institutions are scrambling as the SEC has demanded that at least 100 employees hand over their personal cell phones for inspection, in what is the biggest investigation of its kind in history. 

The SEC is reportedly looking to determine if said employees used unauthorized messaging channels, like SMS or WhatsApp, to discuss business-related matters.

“Since the 1930s, record keeping and books-and-records obligations have been an essential part of market integrity and a foundational component of the SEC’s ability to be an effective cop on the beat,” said SEC Chair Gary Gensler in a 2021 statement. 

“As technology changes, it’s even more important that registrants ensure that their communications are appropriately recorded and are not conducted outside of official channels in order to avoid market oversight,” he added.

If that’s the case, the SEC could slap these financial institutions with multimillion-dollar fines, as a punishment for not monitoring or storing business communications according to legal standards that apply to the industry. Not only will the financial impact from the fines be tough to manage, the implications for these companies’ long-term reputations are also quite negative. 

Institutions don’t have to be found guilty of insider trading or other impropriety in order for their names to be irreparably tarnished in the public eye — an admission that these organizations weren’t compliant with legal standards around storing business communications will likely not be received well by clients, who are warier of privacy violations than ever before.

Blurred lines can mean massive fines

Graphs, charts, and annual predictions are helpful tools, but in a rapidly fluctuating and unpredictable market, the human touch remains key. While there’s no way to guarantee an outcome in this constantly shifting space, getting perspective from others with more experience, or perhaps a hunch about the direction in which the market will soon turn, is common practice.

The finance industry is surprisingly dependent on interpersonal relationships, with a wink of approval or hint of caution from an insider enough to make the difference between a major win and devastating losses, even for an experienced broker. 

And those conversations typically take place on more casual communications channels, like WhatsApp and SMS. In these situations, the lines between personal and business chats are often blurred.

“Gossip and inside information are worth a lot more on Wall Street than almost everywhere else. It can make people unimaginably rich,” the Washington Post explains. If the investigation reveals that employees at top firms are engaged in borderline illegal behavior, there will be implications about insider trading carrying the potential for both criminal charges and irreparable damage to brand reputation. 

But even if traders haven’t engaged in illegal behavior, simply using WhatsApp or SMS messages to discuss even vaguely business-related matters is inherently problematic and risky in this highly regulated industry. 

Because people have the power to delete a single message and change the narrative of a conversation, or the loss of a phone can mean that one side of a conversation is lost forever, there’s no objective record of business communications determining the fate of millions of dollars. This puts firms at serious risk, especially in the case of an investigation or legal dispute down the road.

Moving forward, responsibly

Bankers and traders can’t use unauthorized, unsecured platforms for business-related conversations due to strict requirements around communications in the finance industry. 

But to expect these finance professionals to abandon modern, lightning-fast instant and mobile messaging platforms in favor of the phone calls and emails of the days of yore is wildly unrealistic.

WhatsApp, SMS, iMessage, WeChat, and other messaging apps are now par for the course for the business world, and that includes the finance sector. 

While there are devastating consequences for employees who use unauthorized platforms, and their workplaces and supervisors who look the other way, going back to archaic communication is simply not an option.

The solution is to transform mobile-first messaging platforms into authorized communications channels that are clearly compliant with legal standards. 

Enabling the responsible use of these apps means that both clients and employees can enjoy the best of both worlds – super-fast, convenient conversation, alongside the security of knowing that all messages are properly stored and recorded.

According to some accounts of the recent phone confiscation fiasco, bankers are “grumpy” and even “livid.” Who could blame them? Few things are more personal and sensitive than one’s smartphone. And having the government comb through it is akin to a digital strip search. 

According to one account, lawyers were brought in as middlemen to comb through an infinite number of messages and evaluate which were “business-related” and should be handed over to the authorities. This seems like a forced attempt to mitigate an unbearably embarrassing and sensitive situation.

This has to end. 

That’s why more and more Tier 1 financial institutions are adopting LeapXpert’s Federated Messaging Orchestration Platform (FMOP™), a mobile-first, interoperable solution that gives enterprises unparalleled visibility into data from instant messaging applications, as well as full control over how these apps are used.

Once each and every financial institution has bridged the gap between enterprise systems and messaging apps, bankers will be able to comfortably and responsibly separate business and personal messages. And scenes like last week’s phone confiscation will be a thing of the past.

Until then, expect more “WhatsApp of Wall Street” fiascos.