Private equity giants near settlement with SEC over SMS violations

Blackstone, TPG and Carlyle Group revealed in their latest quarterly filings that they have cooperated with the U.S. Securities and Exchange Commission's recordkeeping investigations and have initiated discussions with enforcement staff of agency law on potential resolutions.

Under SEC rules, financial companies are required to maintain and monitor the written communications of their employees, which creates a paper trail for regulators to monitor and enforce federal laws.

Companies whose employees discuss business on banned mobile apps such as WhatsApp risk violating these rules if they do not retain or monitor these messages. In many cases, according to the SEC, companies did not collect these messages because they were exchanged on employees' personal devices.

The three companies said they received requests for information related to the retention of electronic business communications, including text messages, in October 2022 as part of a broader industry-wide sweep. They later disclosed the investigations in their respective securities filings, the Wall Street Journal previously reported.

An SEC spokesperson said the agency does not comment on the existence or non-existence of a possible investigation.

Spokespeople for Blackstone, Carlyle and TPG all declined to comment.

Blackstone, in its latest quarterly report filed in early May, said its financial results for the first quarter of 2024 “include a provision for the estimated liability related to this matter.” TPG, in a quarterly filing in May, also said it recorded a contingent liability related to the investigation for the period ending March 31.

It's unclear from the filings exactly how much the two companies have set aside for possible settlements with the SEC.

Carlyle, in its May 7 quarterly report, said the SEC was studying the retention of business communications sent via text messages and messaging apps such as WhatsApp and WeChat. The buyout company added that there was no guarantee a settlement would be reached.

Other private equity firms have also disclosed investigations into their recordkeeping practices related to text messages, without providing updates on potential resolutions. KKR said it is currently subject to the SEC's recordkeeping investigations and is cooperating with the agency, according to its latest quarterly report.

Apollo said some of its investment adviser subsidiaries received a request for information and documents from the SEC for the recordkeeping investigation, according to its latest quarterly filing.

A KKR spokeswoman and an Apollo spokesperson declined to comment beyond the filings.

The private equity firms' revelations come as U.S. regulators have continued their crackdown on off-channel communications violations in recent years. Since December 2021, the SEC has filed complaints against 60 companies and fined them more than $1.7 billion for failing to maintain and preserve electronic communications, a top law enforcement official said in April.

Enforcement has shifted from big banks and broker-dealers to other financial companies, including credit rating companies. In February, the SEC levied fines on another round of brokerages to settle claims that their brokers or money managers used messaging apps that violated recordkeeping rules.

Gurbir Grewal, director of the SEC's enforcement division, said late last year that hefty fines for recordkeeping violations had led to policy and procedural changes in businesses.