In re Charles Schwab & Co.

UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 102172 / January 13, 2025 
 
INVESTMENT ADVISERS ACT OF 1940 
Release No. 6817 / January 13, 2025 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22407 
 
 
In the Matter of 
 
            Charles Schwab & Co., Inc., 
 
Respondent. 
ORDER INSTITUTING 
ADMINISTRATIVE AND CEASE-
AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 
21C OF THE SECURITIES 
EXCHANGE ACT OF 1934 AND 
SECTION 203(e) OF THE 
INVESTMENT ADVISERS ACT OF 
1940, MAKING FINDINGS, AND 
IMPOSING REMEDIAL SANCTIONS 
AND A CEASE-AND-DESIST ORDER 
 
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 
the public interest that public administrative and cease-and-desist proceedings be, and hereby 
are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 
(“Exchange Act”) and Section 203(e) of the Investment Advisers Act of 1940 (“Advisers Act”) 
against Charles Schwab & Co., Inc. (“Respondent”). 
 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 
facts set forth in Section III below, acknowledges that its conduct violated the federal securities 
laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 
consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings 
Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 203(e) 
of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions 
and a Cease-and-Desist Order (“Order”), as set forth below.   
 

2 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
Summary 
1. The federal securities laws impose recordkeeping requirements on broker-dealers 
to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 
long said that compliance with these requirements is essential to investor protection and the 
Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 
efficient markets, and facilitating capital formation. 
2. These proceedings arise out of the failure of Respondent’s personnel, including at 
senior levels, to adhere to certain of these essential requirements and Respondent’s own policies 
and procedures.  Using their personal devices, these personnel communicated both internally and 
externally by text messages, and/or other unapproved written communications platforms, such as 
LinkedIn and Facebook Messenger (“off-channel communications”).  
3. In addition, Respondent self-reported that between approximately April 2016 and 
February 2021, due to an error by its telephone service provider that Respondent did not identify 
until late January 2021, Respondent inadvertently failed to retain approximately 330,000 
business-related text messages (“Unpreserved Text Messages”) sent and received by 
approximately 1,700 firm personnel through firm-issued mobile devices.  Approximately 215,000 
of these messages were sent and received after January 2020.   
 
4. From at least January 2020, Respondent’s personnel sent and received off-channel 
communications that related to its broker-dealer business.  Respondent did not maintain or 
preserve these written communications.  Respondent’s failure was firm-wide and involved 
personnel at various levels of authority.  As a result, Respondent violated Section 17(a) of the 
Exchange Act and Rule 17a-4(b)(4) thereunder.  
5. During the time period that Respondent failed to maintain and preserve off-
channel communications and Unpreserved Text Messages (the “Relevant Period”), Respondent 
received and responded to Commission subpoenas for documents and records requests in 
numerous Commission investigations.  As a result, Respondent’s recordkeeping failures 
potentially impacted the Commission’s ability to carry out its regulatory functions and 
investigate violations of the federal securities laws across these investigations.   
 
6. Some of Respondent’s supervisors, who were responsible for supervising junior 
personnel, communicated off-channel using their personal devices.  In fact, senior personnel 
responsible for supervising junior personnel themselves failed to comply with Respondent’s 
policies and procedures by communicating, through non-approved methods, on their personal 
devices about Respondent’s broker-dealer business. 
                                                 
1
  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  

3 
7. Respondent’s failure to implement its policies and procedures that prohibit off-
channel communications led to its failure to reasonably supervise its personnel within the 
meaning of Section 15(b)(4)(E) of the Exchange Act.   
8. The Commission staff uncovered Respondent’s misconduct after commencing a 
risk-based initiative to investigate the use of off-channel and unpreserved communications at 
broker-dealers.  Respondent has initiated a review of its recordkeeping failures and begun a 
program of remediation.   
Respondent 
9. Respondent is a California corporation with its principal office in Westlake, 
Texas.  Since June 1971, Respondent has been registered with the Commission as a broker-
dealer, and since July 1987, Respondent has been registered with the Commission as an 
investment adviser.  
Recordkeeping Requirements Under the Exchange Act  
10. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules  
requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 
records as necessary or appropriate in the public interest, for the protection of investors or 
otherwise in furtherance of the purposes of the Exchange Act.  
 
11. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 
authority.  Rule 17a-4 specifies the manner and length of time that the records made in accordance 
with Commission rules, and certain other records made by broker-dealers, must be maintained and 
produced promptly to Commission representatives. 
 
12. The rules adopted under Section 17(a)(1) of the Exchange Act, including  
Rule 17a-4(b)(4), require that broker-dealers preserve for at least three years, the first two years 
in an easily accessible place, originals of all communications received and copies of all written 
communications sent relating to the broker-dealer’s business as such.  These rules impose 
minimum recordkeeping requirements that are based on standards a prudent broker-dealer should 
follow in the normal course of business.  
 
13. The Commission previously has stated that these and other recordkeeping 
requirements “are an integral part of the investor protection function of the Commission, and 
other securities regulators, in that the preserved records are the primary means of monitoring 
compliance with applicable securities laws, including antifraud provisions and financial 
responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 
Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 
with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 

4 
Respondent’s Policies and Procedures 
14. During the Relevant Period, Respondent maintained certain policies and 
procedures designed to ensure the retention of business-related records, including electronic 
communications, in compliance with the relevant recordkeeping provisions.   
15. Respondent’s personnel were advised that the use of unapproved electronic 
communications methods, including on their personal devices, was not permitted, and they 
should not use personal email, chats or text messaging applications for business purposes, or 
forward work-related communications to unapproved applications on their personal devices.  
16. Messages sent through firm-approved communications methods were monitored, 
subject to review, and, when appropriate, archived, other than the Unpreserved Text Messages.  
Messages sent through unapproved communications methods, such as LinkedIn and Facebook 
Messenger, and other unapproved applications on personal devices, were not monitored, subject 
to review or archived. 
17. Respondent’s policies and procedures were designed to address supervisors’ 
supervision of personnel’s training in Respondent’s communications policies and adherence to 
Respondent’s books and recordkeeping requirements.  Supervisory policies notified personnel 
that electronic communications were subject to surveillance by Respondent.  Respondent had 
procedures for all personnel, including supervisors, requiring annual self-attestations of 
compliance.  
18. Respondent, however, failed to implement a system reasonably expected to 
determine whether all personnel, including supervisors, were following its policies and 
procedures.  While permitting personnel to use approved communications methods, including on 
personal phones, for business communications, Respondent failed to implement sufficient 
monitoring to ensure that its recordkeeping and communications policies were being followed. 
Respondent’s Recordkeeping Failures Across Its Brokerage Business 
A. Risk-Based Initiative 
19. In September 2021, the Commission staff commenced a risk-based initiative to 
investigate whether registrants were properly retaining business-related messages sent and 
received on personal devices.  Respondent cooperated with the investigation by voluntarily 
interviewing a sampling of senior personnel from Respondent, and reviewing messages found on 
the individuals’ personal devices.  These personnel subject to review included senior leadership, 
such as managing directors and vice presidents.  
20. The Commission staff’s investigation uncovered off-channel communications at 
various seniority levels within Respondent.  The investigation determined that certain of the 
broker-dealer personnel sampled had engaged in at least some level of off-channel 
communications.   
21. Overall, Respondent’s personnel sent and received numerous off-channel 
communications, involving other Respondent personnel, brokerage customers and other 

5 
participants in the securities industry.  Within Respondent, certain managing directors sent or 
received off-channel communications. 
22. From at least January 2020, Respondent personnel sent and received off-channel 
messages that concerned its broker-dealer business. 
23. For example, a Respondent managing director sent or received off-channel 
business-related messages with 15 customers, investors, or other market participants, via 
LinkedIn.  These messages related to the broker-dealer’s business as such.  
24. In addition, a Respondent managing director sent or received off-channel 
business-related text messages with at least four Respondent colleagues, and with five customers, 
investors, or other market participants.  Within Respondent, the individual also communicated 
with Respondent’s managing directors and executives.  These messages related to the broker-
dealer’s business as such.  
B. Respondent’s Failure to Retain Text Messages on Firm-Issued Devices  
25. Between April 2016 and February 2021, Respondent issued mobile devices to 
certain employees.  Under its arrangement with its telephone service provider, the service provider 
was required to block texting capabilities for all phones and only activate texting capability at 
Respondent’s direction. 
 
26. To comply with the firm’s recordkeeping requirements, Respondent set up a system 
whereby personnel could request for their mobile phones to be enabled for texting, known as an 
“opt-in” process.  The employee’s manager then reviewed the request and, if appropriate, 
approved the employee’s request.  Respondent then notified its telephone service provider to turn 
on text capability for the specific employee’s mobile phone.  Respondent took steps to preserve 
and supervise business-related text messages for employees who completed the opt-in process 
and were approved.    
 
27. In January 2021, Respondent identified that its telephone service provider had 
erroneously enabled text messaging on firm-issued phones for approximately 1,700 personnel 
who had not obtained firm approval for texting.  Messages sent and received on these devices 
were not retained.  The firm had no internal procedure to help ensure that every text-enabled 
phone issued to an employee had a corresponding online firm approval, and that texts sent 
through those phones were being retained. 
 
28. As a result, between approximately April 2016 and February 2021, Respondent 
failed to retain approximately 330,000 text messages sent or received by over 1,700 firm personnel 
through firm issued mobile phones, which were issued to personnel to conduct Respondent’s 
business.  Over 215,000 of these messages were sent and received after January 2020.   
 
29. Following this discovery, Respondent promptly disabled texting on the affected 
phones, required employees to complete the opt-in process, and blocked access to texting for 
employees who did not complete the opt-in process.  Respondent also blocked texting access as a 
default on all new devices, and has enhanced its procedures by, among other things, validating 

6 
whether texts are activated on all new devices through weekly reports from its telephone service 
providers.  Respondent was unable to recover Unpreserved Text Messages  
 
30. Respondent self-reported these recordkeeping violations, as they related to the 
firm’s broker-dealer business, to the Financial Industry Regulatory Authority (“FINRA”) on May 
19, 2021. 
 
Respondent’s Failure to Preserve Required Records Potentially 
Compromised and Delayed Commission Matters 
31. During the Relevant Period, Respondent received and responded to Commission 
subpoenas for documents and records requests in numerous Commission investigations.  By 
failing to maintain and preserve required records relating to its broker-dealer business, 
Respondent potentially deprived the Commission of these off-channel communications in 
various investigations. 
 
Respondent’s Violations and Failure to Supervise 
32. As a result of the conduct described above, Respondent willfully
2
 violated Section 
17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder.   
33. As a result of the conduct described above, Respondent failed reasonably to 
supervise its personnel, with a view to preventing or detecting certain of its supervised persons’ 
aiding and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 
thereunder, within the meaning of Section 15(b)(4)(E) of the Exchange Act.  
Respondent’s Efforts to Comply 
34. In determining to accept the Offer, the Commission considered steps promptly 
undertaken and cooperation afforded the Commission staff by Respondent.  Prior to and after 
being approached by the Commission staff, Respondent enhanced its policies and procedures, 
and increased training concerning the use of approved communications methods, and began 
implementing significant changes to the technology available to personnel.  Respondent provided 
its personnel with firm-issued devices or other firm-approved applications, thereby making 
communications through approved channels more readily available, and disciplined personnel who 
violated its recordkeeping policies and procedures.   
Undertakings 
Respondent has undertaken to: 
                                                 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act and 
Section 203(e) of the Advisers Act, “‘means no more than that the person charged with the duty 
knows what he is doing.’”  See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting 
Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).   

7 
35. Internal Audit.  Within two hundred seventy (270) days of the entry of this Order, 
Respondent shall require that its Internal Audit function conduct a separate audit(s) consisting of 
the following:   
 
a.  A comprehensive review of Respondent’s supervisory, compliance, and other 
policies and procedures designed to ensure that Respondent’s electronic communications, 
including those found on personal electronic devices, including without limitation, 
cellular phones (“Personal Devices”), are preserved in accordance with the requirements 
of the federal securities laws. 
 
b.  A comprehensive review of training conducted by Respondent to ensure 
personnel are complying with the requirements regarding the preservation of electronic 
communications, including those found on Personal Devices, in accordance with the 
requirements of the federal securities laws, including by ensuring that Respondent’s 
personnel certify in writing on a quarterly basis that they are complying with preservation 
requirements.  
 
c.  An assessment of the surveillance program measures implemented by 
Respondent to ensure compliance, on an ongoing basis, with the requirements found in 
the federal securities laws to preserve electronic communications, including those found 
on Personal Devices. 
 
d.  An assessment of the technological solutions that Respondent has begun 
implementing to meet the record retention requirements of the federal securities laws, 
including an assessment of the likelihood that Respondent’s personnel will use the 
technological solutions going forward and a review of the measures employed by 
Respondent to track employee usage of new technological solutions.  
 
e.  An assessment of the measures used by Respondent to prevent the use of 
unauthorized communications methods for business communications by personnel.  This 
assessment should include, but not be limited to, a review of Respondent’s policies and 
procedures to ascertain if they provide for any significant technology and/or behavioral 
restrictions that help prevent the risk of the use of unapproved communications methods 
on Personal Devices (e.g., trading floor restrictions).   
 
f.  A review of Respondent’s electronic communications surveillance routines to 
ensure that electronic communications through approved communications methods found 
on Personal Devices are incorporated into Respondent’s overall communications 
surveillance program.   
 
g.  A comprehensive review of the framework adopted by Respondent to address 
instances of non-compliance by Respondent’s personnel with Respondent’s policies and 
procedures concerning the use of Personal Devices to communicate about Respondent’s 
business in the past.  This review shall include a survey of how Respondent determined 
which personnel failed to comply with Respondent’s policies and procedures, the 
corrective action carried out, an evaluation of who violated the policies and procedures 

8 
and why, what penalties were imposed, and whether penalties were handed out 
consistently across business lines and seniority levels.  
 
36. Recordkeeping.  Respondent shall preserve, for a period of not less than six (6)  
years from the end of the fiscal year last used, the first two (2) years in an easily accessible place, 
any record of compliance with these undertakings. 
 
37. Certification.  Respondent shall certify, in writing, compliance with the  
undertakings set forth above.  The certification shall identify the undertakings, provide written 
evidence of compliance in the form of a narrative, and be supported by exhibits sufficient to 
demonstrate compliance.  The Commission staff may make reasonable requests for further 
evidence of compliance, and Respondent agrees to provide such evidence.  The certification and 
supporting material shall be submitted to Alison R. Levine, Assistant Regional Director, 
Division of Enforcement, New York Regional Office, Securities and Exchange Commission, 100 
Pearl Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission 
staff may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no 
later than sixty (60) days from the date of the completion of the undertakings. 
 
IV. 
 In view of the foregoing, the Commission deems it appropriate and in the public interest 
to impose the sanctions agreed to in Respondent’s Offer. 
 
 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act and Section 203(e) 
of the Advisers Act, it is hereby ORDERED that: 
 
A. Respondent cease and desist from committing or causing any violations and  
any future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 
 
B. Respondent is censured.  
 
C. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $10,000,000 to the Securities and Exchange Commission 
for transfer to the general fund of the United States Treasury, subject to Exchange 
Act Section 21F(g)(3).  If timely payment is not made, additional interest shall 
accrue pursuant to 31 U.S.C. § 3717.   
 Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, 
which will provide detailed ACH transfer/Fedwire instructions upon 
request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 

9 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by cover letters identifying 
Charles Schwab & Co., Inc. as the Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Thomas P. 
Smith, Jr., Associate Regional Director, Securities and Exchange Commission, 100 Pearl Street, 
Suite 20-100, New York, New York 10004-2616.   
 
 E. The amount ordered to be paid as a civil money penalty pursuant to this Order 
shall be treated as a penalty paid to the government for all purposes, including all tax purposes. 
To preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related 
Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction 
of any award of compensatory damages by the amount of any part of Respondent’s payment of a 
civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants 
such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 
granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
means a private damages action brought against Respondent by or on behalf of one or more 
investors based on substantially the same facts as alleged in the Order instituted by the 
Commission in this proceeding. 
 
 
 By the Commission. 
 
 
 
Vanessa A. Countryman 
       Secretary 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 102172 / January 13, 2025 

 

INVESTMENT ADVISERS ACT OF 1940 

Release No. 6817 / January 13, 2025 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22407 

 

 

In the Matter of 

 

            Charles Schwab & Co., Inc., 

 

Respondent. 

ORDER INSTITUTING 

ADMINISTRATIVE AND CEASE-

AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 15(b) AND 

21C OF THE SECURITIES 

EXCHANGE ACT OF 1934 AND 

SECTION 203(e) OF THE 

INVESTMENT ADVISERS ACT OF 

1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS 

AND A CEASE-AND-DESIST ORDER 

 

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate and in 

the public interest that public administrative and cease-and-desist proceedings be, and hereby 

are, instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 

(“Exchange Act”) and Section 203(e) of the Investment Advisers Act of 1940 (“Advisers Act”) 

against Charles Schwab & Co., Inc. (“Respondent”). 

 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (“Offer”) that the Commission has determined to accept.  Respondent admits the 

facts set forth in Section III below, acknowledges that its conduct violated the federal securities 

laws, admits the Commission’s jurisdiction over it and the subject matter of these proceedings, and 

consents to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings 

Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 203(e) 

of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions 

and a Cease-and-Desist Order (“Order”), as set forth below.   

 



2 

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 

 

Summary 

1. The federal securities laws impose recordkeeping requirements on broker-dealers 

to ensure that they responsibly discharge their crucial role in our markets.  The Commission has 

long said that compliance with these requirements is essential to investor protection and the 

Commission’s efforts to further its mandate of protecting investors, maintaining fair, orderly, and 

efficient markets, and facilitating capital formation. 

2. These proceedings arise out of the failure of Respondent’s personnel, including at 

senior levels, to adhere to certain of these essential requirements and Respondent’s own policies 

and procedures.  Using their personal devices, these personnel communicated both internally and 

externally by text messages, and/or other unapproved written communications platforms, such as 

LinkedIn and Facebook Messenger (“off-channel communications”).  

3. In addition, Respondent self-reported that between approximately April 2016 and 

February 2021, due to an error by its telephone service provider that Respondent did not identify 

until late January 2021, Respondent inadvertently failed to retain approximately 330,000 

business-related text messages (“Unpreserved Text Messages”) sent and received by 

approximately 1,700 firm personnel through firm-issued mobile devices.  Approximately 215,000 

of these messages were sent and received after January 2020.   

 

4. From at least January 2020, Respondent’s personnel sent and received off-channel 

communications that related to its broker-dealer business.  Respondent did not maintain or 

preserve these written communications.  Respondent’s failure was firm-wide and involved 

personnel at various levels of authority.  As a result, Respondent violated Section 17(a) of the 

Exchange Act and Rule 17a-4(b)(4) thereunder.  

5. During the time period that Respondent failed to maintain and preserve off-

channel communications and Unpreserved Text Messages (the “Relevant Period”), Respondent 

received and responded to Commission subpoenas for documents and records requests in 

numerous Commission investigations.  As a result, Respondent’s recordkeeping failures 

potentially impacted the Commission’s ability to carry out its regulatory functions and 

investigate violations of the federal securities laws across these investigations.   

 

6. Some of Respondent’s supervisors, who were responsible for supervising junior 

personnel, communicated off-channel using their personal devices.  In fact, senior personnel 

responsible for supervising junior personnel themselves failed to comply with Respondent’s 

policies and procedures by communicating, through non-approved methods, on their personal 

devices about Respondent’s broker-dealer business. 

                                                 
1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  



3 

7. Respondent’s failure to implement its policies and procedures that prohibit off-

channel communications led to its failure to reasonably supervise its personnel within the 

meaning of Section 15(b)(4)(E) of the Exchange Act.   

8. The Commission staff uncovered Respondent’s misconduct after commencing a 

risk-based initiative to investigate the use of off-channel and unpreserved communications at 

broker-dealers.  Respondent has initiated a review of its recordkeeping failures and begun a 

program of remediation.   

Respondent 

9. Respondent is a California corporation with its principal office in Westlake, 

Texas.  Since June 1971, Respondent has been registered with the Commission as a broker-

dealer, and since July 1987, Respondent has been registered with the Commission as an 

investment adviser.  

Recordkeeping Requirements Under the Exchange Act  

10. Section 17(a)(1) of the Exchange Act authorizes the Commission to issue rules  

requiring broker-dealers to make and keep for prescribed periods, and furnish copies of, such 

records as necessary or appropriate in the public interest, for the protection of investors or 

otherwise in furtherance of the purposes of the Exchange Act.  

 

11. The Commission adopted Rule 17a-4 under the Exchange Act pursuant to this 

authority.  Rule 17a-4 specifies the manner and length of time that the records made in accordance 

with Commission rules, and certain other records made by broker-dealers, must be maintained and 

produced promptly to Commission representatives. 

 

12. The rules adopted under Section 17(a)(1) of the Exchange Act, including  

Rule 17a-4(b)(4), require that broker-dealers preserve for at least three years, the first two years 

in an easily accessible place, originals of all communications received and copies of all written 

communications sent relating to the broker-dealer’s business as such.  These rules impose 

minimum recordkeeping requirements that are based on standards a prudent broker-dealer should 

follow in the normal course of business.  

 

13. The Commission previously has stated that these and other recordkeeping 

requirements “are an integral part of the investor protection function of the Commission, and 

other securities regulators, in that the preserved records are the primary means of monitoring 

compliance with applicable securities laws, including antifraud provisions and financial 

responsibility standards.”  Commission Guidance to Broker-Dealers on the Use of Electronic 

Storage Media under the Electronic Signatures in Global and National Commerce Act of 2000 

with Respect to Rule 17a-4(f), 17 C.F.R. Part 241, Exchange Act Rel. No. 44238 (May 1, 2001). 



4 

Respondent’s Policies and Procedures 

14. During the Relevant Period, Respondent maintained certain policies and 

procedures designed to ensure the retention of business-related records, including electronic 

communications, in compliance with the relevant recordkeeping provisions.   

15. Respondent’s personnel were advised that the use of unapproved electronic 

communications methods, including on their personal devices, was not permitted, and they 

should not use personal email, chats or text messaging applications for business purposes, or 

forward work-related communications to unapproved applications on their personal devices.  

16. Messages sent through firm-approved communications methods were monitored, 

subject to review, and, when appropriate, archived, other than the Unpreserved Text Messages.  

Messages sent through unapproved communications methods, such as LinkedIn and Facebook 

Messenger, and other unapproved applications on personal devices, were not monitored, subject 

to review or archived. 

17. Respondent’s policies and procedures were designed to address supervisors’ 

supervision of personnel’s training in Respondent’s communications policies and adherence to 

Respondent’s books and recordkeeping requirements.  Supervisory policies notified personnel 

that electronic communications were subject to surveillance by Respondent.  Respondent had 

procedures for all personnel, including supervisors, requiring annual self-attestations of 

compliance.  

18. Respondent, however, failed to implement a system reasonably expected to 

determine whether all personnel, including supervisors, were following its policies and 

procedures.  While permitting personnel to use approved communications methods, including on 

personal phones, for business communications, Respondent failed to implement sufficient 

monitoring to ensure that its recordkeeping and communications policies were being followed. 

Respondent’s Recordkeeping Failures Across Its Brokerage Business 

A. Risk-Based Initiative 

19. In September 2021, the Commission staff commenced a risk-based initiative to 

investigate whether registrants were properly retaining business-related messages sent and 

received on personal devices.  Respondent cooperated with the investigation by voluntarily 

interviewing a sampling of senior personnel from Respondent, and reviewing messages found on 

the individuals’ personal devices.  These personnel subject to review included senior leadership, 

such as managing directors and vice presidents.  

20. The Commission staff’s investigation uncovered off-channel communications at 

various seniority levels within Respondent.  The investigation determined that certain of the 

broker-dealer personnel sampled had engaged in at least some level of off-channel 

communications.   

21. Overall, Respondent’s personnel sent and received numerous off-channel 

communications, involving other Respondent personnel, brokerage customers and other 



5 

participants in the securities industry.  Within Respondent, certain managing directors sent or 

received off-channel communications. 

22. From at least January 2020, Respondent personnel sent and received off-channel 

messages that concerned its broker-dealer business. 

23. For example, a Respondent managing director sent or received off-channel 

business-related messages with 15 customers, investors, or other market participants, via 

LinkedIn.  These messages related to the broker-dealer’s business as such.  

24. In addition, a Respondent managing director sent or received off-channel 

business-related text messages with at least four Respondent colleagues, and with five customers, 

investors, or other market participants.  Within Respondent, the individual also communicated 

with Respondent’s managing directors and executives.  These messages related to the broker-

dealer’s business as such.  

B. Respondent’s Failure to Retain Text Messages on Firm-Issued Devices  

25. Between April 2016 and February 2021, Respondent issued mobile devices to 

certain employees.  Under its arrangement with its telephone service provider, the service provider 

was required to block texting capabilities for all phones and only activate texting capability at 

Respondent’s direction. 

 

26. To comply with the firm’s recordkeeping requirements, Respondent set up a system 

whereby personnel could request for their mobile phones to be enabled for texting, known as an 

“opt-in” process.  The employee’s manager then reviewed the request and, if appropriate, 

approved the employee’s request.  Respondent then notified its telephone service provider to turn 

on text capability for the specific employee’s mobile phone.  Respondent took steps to preserve 

and supervise business-related text messages for employees who completed the opt-in process 

and were approved.    

 

27. In January 2021, Respondent identified that its telephone service provider had 

erroneously enabled text messaging on firm-issued phones for approximately 1,700 personnel 

who had not obtained firm approval for texting.  Messages sent and received on these devices 

were not retained.  The firm had no internal procedure to help ensure that every text-enabled 

phone issued to an employee had a corresponding online firm approval, and that texts sent 

through those phones were being retained. 

 

28. As a result, between approximately April 2016 and February 2021, Respondent 

failed to retain approximately 330,000 text messages sent or received by over 1,700 firm personnel 

through firm issued mobile phones, which were issued to personnel to conduct Respondent’s 

business.  Over 215,000 of these messages were sent and received after January 2020.   

 

29. Following this discovery, Respondent promptly disabled texting on the affected 

phones, required employees to complete the opt-in process, and blocked access to texting for 

employees who did not complete the opt-in process.  Respondent also blocked texting access as a 

default on all new devices, and has enhanced its procedures by, among other things, validating 



6 

whether texts are activated on all new devices through weekly reports from its telephone service 

providers.  Respondent was unable to recover Unpreserved Text Messages  

 

30. Respondent self-reported these recordkeeping violations, as they related to the 

firm’s broker-dealer business, to the Financial Industry Regulatory Authority (“FINRA”) on May 

19, 2021. 

 

Respondent’s Failure to Preserve Required Records Potentially 

Compromised and Delayed Commission Matters 

31. During the Relevant Period, Respondent received and responded to Commission 

subpoenas for documents and records requests in numerous Commission investigations.  By 

failing to maintain and preserve required records relating to its broker-dealer business, 

Respondent potentially deprived the Commission of these off-channel communications in 

various investigations. 

 

Respondent’s Violations and Failure to Supervise 

32. As a result of the conduct described above, Respondent willfully2 violated Section 

17(a) of the Exchange Act and Rule 17a-4(b)(4) thereunder.   

33. As a result of the conduct described above, Respondent failed reasonably to 

supervise its personnel, with a view to preventing or detecting certain of its supervised persons’ 

aiding and abetting violations of Section 17(a) of the Exchange Act and Rule 17a-4(b)(4) 

thereunder, within the meaning of Section 15(b)(4)(E) of the Exchange Act.  

Respondent’s Efforts to Comply 

34. In determining to accept the Offer, the Commission considered steps promptly 

undertaken and cooperation afforded the Commission staff by Respondent.  Prior to and after 

being approached by the Commission staff, Respondent enhanced its policies and procedures, 

and increased training concerning the use of approved communications methods, and began 

implementing significant changes to the technology available to personnel.  Respondent provided 

its personnel with firm-issued devices or other firm-approved applications, thereby making 

communications through approved channels more readily available, and disciplined personnel who 

violated its recordkeeping policies and procedures.   

Undertakings 

Respondent has undertaken to: 

                                                 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange Act and 

Section 203(e) of the Advisers Act, “‘means no more than that the person charged with the duty 

knows what he is doing.’”  See Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir 2000) (quoting 

Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).   



7 

35. Internal Audit.  Within two hundred seventy (270) days of the entry of this Order, 

Respondent shall require that its Internal Audit function conduct a separate audit(s) consisting of 

the following:   

 

a.  A comprehensive review of Respondent’s supervisory, compliance, and other 

policies and procedures designed to ensure that Respondent’s electronic communications, 

including those found on personal electronic devices, including without limitation, 

cellular phones (“Personal Devices”), are preserved in accordance with the requirements 

of the federal securities laws. 

 

b.  A comprehensive review of training conducted by Respondent to ensure 

personnel are complying with the requirements regarding the preservation of electronic 

communications, including those found on Personal Devices, in accordance with the 

requirements of the federal securities laws, including by ensuring that Respondent’s 

personnel certify in writing on a quarterly basis that they are complying with preservation 

requirements.  

 

c.  An assessment of the surveillance program measures implemented by 

Respondent to ensure compliance, on an ongoing basis, with the requirements found in 

the federal securities laws to preserve electronic communications, including those found 

on Personal Devices. 

 

d.  An assessment of the technological solutions that Respondent has begun 

implementing to meet the record retention requirements of the federal securities laws, 

including an assessment of the likelihood that Respondent’s personnel will use the 

technological solutions going forward and a review of the measures employed by 

Respondent to track employee usage of new technological solutions.  

 

e.  An assessment of the measures used by Respondent to prevent the use of 

unauthorized communications methods for business communications by personnel.  This 

assessment should include, but not be limited to, a review of Respondent’s policies and 

procedures to ascertain if they provide for any significant technology and/or behavioral 

restrictions that help prevent the risk of the use of unapproved communications methods 

on Personal Devices (e.g., trading floor restrictions).   

 

f.  A review of Respondent’s electronic communications surveillance routines to 

ensure that electronic communications through approved communications methods found 

on Personal Devices are incorporated into Respondent’s overall communications 

surveillance program.   

 

g.  A comprehensive review of the framework adopted by Respondent to address 

instances of non-compliance by Respondent’s personnel with Respondent’s policies and 

procedures concerning the use of Personal Devices to communicate about Respondent’s 

business in the past.  This review shall include a survey of how Respondent determined 

which personnel failed to comply with Respondent’s policies and procedures, the 

corrective action carried out, an evaluation of who violated the policies and procedures 



8 

and why, what penalties were imposed, and whether penalties were handed out 

consistently across business lines and seniority levels.  

 

36. Recordkeeping.  Respondent shall preserve, for a period of not less than six (6)  

years from the end of the fiscal year last used, the first two (2) years in an easily accessible place, 

any record of compliance with these undertakings. 

 

37. Certification.  Respondent shall certify, in writing, compliance with the  

undertakings set forth above.  The certification shall identify the undertakings, provide written 

evidence of compliance in the form of a narrative, and be supported by exhibits sufficient to 

demonstrate compliance.  The Commission staff may make reasonable requests for further 

evidence of compliance, and Respondent agrees to provide such evidence.  The certification and 

supporting material shall be submitted to Alison R. Levine, Assistant Regional Director, 

Division of Enforcement, New York Regional Office, Securities and Exchange Commission, 100 

Pearl Street, Suite 20-100, New York, NY, 10004-2616, or such other person as the Commission 

staff may request, with a copy to the Office of Chief Counsel of the Enforcement Division, no 

later than sixty (60) days from the date of the completion of the undertakings. 

 

IV. 

 In view of the foregoing, the Commission deems it appropriate and in the public interest 

to impose the sanctions agreed to in Respondent’s Offer. 

 

 Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act and Section 203(e) 

of the Advisers Act, it is hereby ORDERED that: 

 

A. Respondent cease and desist from committing or causing any violations and  

any future violations of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder. 

 

B. Respondent is censured.  

 

C. Respondent shall, within 14 days of the entry of this Order, pay a civil money 

penalty in the amount of $10,000,000 to the Securities and Exchange Commission 

for transfer to the general fund of the United States Treasury, subject to Exchange 

Act Section 21F(g)(3).  If timely payment is not made, additional interest shall 

accrue pursuant to 31 U.S.C. § 3717.   

 Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 



9 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by cover letters identifying 

Charles Schwab & Co., Inc. as the Respondent in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Thomas P. 

Smith, Jr., Associate Regional Director, Securities and Exchange Commission, 100 Pearl Street, 

Suite 20-100, New York, New York 10004-2616.   

 

 E. The amount ordered to be paid as a civil money penalty pursuant to this Order 

shall be treated as a penalty paid to the government for all purposes, including all tax purposes. 

To preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related 

Investor Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction 

of any award of compensatory damages by the amount of any part of Respondent’s payment of a 

civil penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants 

such a Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order 

granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 

of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 

deemed an additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 

means a private damages action brought against Respondent by or on behalf of one or more 

investors based on substantially the same facts as alleged in the Order instituted by the 

Commission in this proceeding. 

 

 

 By the Commission. 

 

 

 

Vanessa A. Countryman 

       Secretary 

 

 


	UNITED STATES OF AMERICA
	I.
	II.
	III.
	Summary
	Respondent
	Recordkeeping Requirements Under the Exchange Act
	Respondent’s Policies and Procedures
	Respondent’s Recordkeeping Failures Across Its Brokerage Business
	19. In September 2021, the Commission staff commenced a risk-based initiative to investigate whether registrants were properly retaining business-related messages sent and received on personal devices.  Respondent cooperated with the investigation by ...
	Respondent’s Failure to Preserve Required Records Potentially Compromised and Delayed Commission Matters
	Respondent’s Violations and Failure to Supervise
	Respondent’s Efforts to Comply
	Undertakings

	IV.