In April 2024, the Securities and Exchange Commission (SEC) imposed a $6.5 million penalty on Senvest Management, LLC, a registered investment adviser, for multiple violations of the Investment Advisers Act of 1940. The violations primarily stemmed from Senvest’s failure to properly retain and preserve business-related communications and enforce its internal compliance policies. Below is a summary of the key provisions of the SEC’s order against Senvest.
1. Recordkeeping Violations
Senvest employees, including senior officers, used unauthorized “off-channel communications” on personal devices to discuss firm-related business from January 2019 to December 2021. These communications violated Senvest’s policies and the SEC’s recordkeeping requirements, as the firm failed to retain these messages. Many of these business-related communications, including those discussing securities advice and trades, were automatically deleted after 30 days, which compromised the SEC’s ability to obtain complete records during investigations.
2. Code of Ethics Violations
Senvest failed to enforce its code of ethics, which required employees to obtain pre-clearance for personal securities transactions. This lack of oversight allowed employees, including senior executives, to trade securities in personal accounts without pre-approval, resulting in potential conflicts of interest and missed regulatory compliance checks.
3. Impact on SEC Investigations
Senvest’s failure to preserve required records hampered the SEC’s ability to obtain critical communications during investigations. This negligence not only violated SEC rules but also delayed regulatory processes and raised concerns about transparency and compliance within the firm.
4. Remedial Actions and Penalties
To address these violations, Senvest has implemented several remedial measures, including:
- Issuing firm-controlled devices to employees to prevent off-channel communications.
- Introducing stricter rules for employee trading, including prohibiting trades in positions held by clients.
- Hiring a compliance consultant to oversee the firm’s supervisory and compliance programs, ensuring adherence to recordkeeping and personal trading policies.
In addition to the $6.5 million fine, Senvest must work with the SEC-appointed compliance consultant to review and strengthen its communication policies, including surveillance of personal devices to prevent further violations.
5. Compliance Consultant Mandate
The SEC’s order requires Senvest to retain an independent compliance consultant to conduct a thorough review of the firm’s policies and procedures related to electronic communications and personal trading. The consultant will assess Senvest’s adherence to recordkeeping rules and ensure its employees comply with federal securities laws. This review is crucial to prevent future violations and ensure long-term compliance.
Conclusion
The SEC’s action against Senvest Management serves as a reminder of the critical importance of adhering to recordkeeping and compliance requirements. Firms must not only have policies in place but also enforce them effectively to protect investors and maintain market integrity. Failure to do so can result in significant penalties and damage to the firm’s reputation. The Senvest case highlights the growing scrutiny on firms that fail to preserve critical business communications and enforce internal controls, particularly in today’s digital world.
About Michael Rasmussen
Michael Rasmussen is the founder of United Atlantic Legal Services. He is a licensed attorney in Florida and registered solicitor in the United Kingdom. Michael has acted as General Counsel and Chief Compliance Officer to several investment advisers, including private fund managers, responsible for the management of billions of dollars in client assets.
Michael is also the founder of FinProLaw, an online learning platform where Michael has created courses designed for investment adviser compliance professionals. These courses include:
- Investment Adviser Compliance Essential for Chief Compliance Officers
- Foundations of Investment Adviser Compliance
- What is a “Security”?
- Investment Adviser Marketing Rule
- Regulation A – Exemption from Registration
- Regulation Crowdfunding – Exemption from Registration
- Regulation D – Exemption from Registration
Michael can also be found on LinkedIn.
Investment adviser firms who are also clients of United Atlantic Legal Services can receive many of these courses at a significantly reduced fee or, in some cases, at no expense. Contact us today or visit the FinProLaw to learn more.