[Asia Economy Reporter Yujin Cho] U.S. regulatory authorities have launched a comprehensive investigation into the practice of exchanging and leaking work-related information using unofficial messaging apps like WhatsApp on Wall Street. The scope of the investigation, which was previously limited to bankers, is now expanding to various fields such as asset management, investment advisory, and investment trusts, increasing the level of regulation.
The U.S. Securities and Exchange Commission (SEC) has begun investigating whether employees of major hedge funds on Wall Street used WhatsApp on their personal phones to exchange trading-related information, Bloomberg reported on the 2nd (local time). Recently, the SEC requested internal investigations from Point72 Asset Management, led by hedge fund titan Steven Cohen, and Citadel, founded by Ken Griffin, regarding this matter.
The SEC has also included employees involved in investment advisory, asset management, and private equity fund (PEF) operations on Wall Street in the scope of the investigation. This move is based on the judgment that managing and preserving investment and trading-related work through unofficial channels like WhatsApp violates securities laws. WhatsApp is a mobile messenger similar to KakaoTalk, Korea’s representative messenger, and is known to be widely used on Wall Street due to its privacy features and program structure similar to Telegram.
Led by Gary Gensler, the SEC views this proactive investigation into poor work practices outside of compliance duties as a way to prevent illegal acts such as embezzlement or fraud.
Previously, the SEC imposed fines on JP Morgan, a leading Wall Street investment bank (IB), holding its employees accountable for neglecting compliance regulations, and last year collected a total of $2 billion in fines from more than 10 major IBs.
In response to these regulatory moves, Morgan Stanley recently imposed internal fines ranging from several thousand dollars to over $1 million on employees who used personal messengers instead of official company messengers or emails for work-related communications. The amount of the fine was determined based on factors such as the number of messages sent, job rank, years of service, and recurrence.
The U.S. SEC is expanding the enforcement of securities laws, which had been focused on the banking sector, to fields such as investment advisory, asset management, and asset trusts. Bloomberg reported that the SEC has launched a public investigation into whether employees engaged in asset management use unofficial communication methods to secure clients or close deals.
Since the pandemic, the spread of remote work has normalized work through mobile messaging apps, making it more difficult to monitor and assess compliance. As a result, there is a growing regulatory trend aimed at preventing various moral hazards such as lax organizational management and potential illegal activities targeting Wall Street financial firms.
Howard Fisher, an attorney at the law firm Moses Singer, interpreted, "The SEC’s investigation is expanding beyond the stock market to every corner of the financial services sector. With the increase in remote work environments, the use of unofficial communication methods outside the office has increased, leading to an expansion in the scale and intensity of investigations."
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