In re First Trust Portfolios L.P.

 
 
UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 100700 / August 14, 2024 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-21996 
 
 
In the Matter of 
 
First Trust Portfolios L.P., 
 
Respondent. 
ORDER INSTITUTING ADMINISTRATIVE 
AND CEASE-AND-DESIST PROCEEDINGS, 
PURSUANT TO SECTIONS 15(b) AND 21C 
OF THE SECURITIES EXCHANGE ACT OF 
1934, 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”) against First Trust Portfolios L.P. (“Respondent” or “First Trust”). 
 
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, Making Findings, 
and Imposing Remedial Sanctions and a Cease-and-Desist Order (“Order”), as set forth below.   
 
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
 
 
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.  

 
 
2 
 
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 widespread and longstanding failure of First 
Trust employees throughout the firm, including at senior levels, to adhere to certain of these 
essential requirements and First Trust’s own policies.  Using their personal devices, these 
employees communicated both internally and externally by personal text messages (“off-channel 
communications”). 
3. From at least August 2019, First Trust employees sent and received off-channel 
communications that related to the business of the broker-dealer operated by First Trust.  
Respondent did not maintain or preserve the substantial majority of these written 
communications.  Respondent’s failure was firm-wide, and involved employees at various levels 
of authority.  As a result, First Trust violated Section 17(a) of the Exchange Act and Rule 
17a-4(b)(4) thereunder. 
4. First Trust’s supervisors, who were responsible for supervising junior employees, 
routinely communicated off-channel using their personal devices.  In fact, senior managers and 
other First Trust employees responsible for supervising junior employees themselves failed to 
comply with First Trust’s policies by communicating using non-First Trust approved methods on 
their personal devices about First Trust’s broker-dealer business.  
5. First Trust’s widespread failure to implement its policies and procedures that 
prohibit such communications led to its failure to reasonably supervise its employees within the 
meaning of Section 15(b)(4)(E) of the Exchange Act. 
6. During the time period that First Trust failed to maintain and preserve off-channel 
communications that its employees sent and received related to the broker-dealer’s business, First 
Trust received and responded to Commission subpoenas for documents and/or records requests 
in Commission investigations.  As a result, First Trust’s recordkeeping failures likely impacted 
the Commission’s ability to carry out its regulatory functions and investigate violations of the 
federal securities laws across these investigations.   
7. Commission staff uncovered First Trust’s misconduct after commencing a 
risk-based initiative to investigate the use of off-channel and unpreserved communications at 
broker-dealers.  First Trust has initiated a review of its recordkeeping failures and begun a 
program of remediation.  As set forth in the Undertakings below, First Trust will retain an 
independent compliance consultant to review and assess First Trust’s remedial steps relating to 
its recordkeeping practices, policies and procedures, related supervisory practices, and 
employment actions. 

 
 
3 
 
Respondent 
8. First Trust Portfolios L.P. is an Illinois limited partnership with its principal 
office in Wheaton, Illinois and is registered with the Commission as a broker-dealer. 
Recordkeeping Requirements under the Exchange Act 
9. 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. 
10. 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 created in 
accordance with other Commission rules, and certain other records produced by broker-dealers, 
must be maintained and produced promptly to Commission representatives.  The rules adopted 
under Section 17(a)(1) of the Exchange Act, including Rule 17a-4(b)(4), require that broker-
dealers preserve in an easily accessible place originals of all communications received and 
copies of all communications sent relating to the firm’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.  
11. 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). 
First Trust’s Policies and Procedures 
12. First Trust maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with 
the relevant recordkeeping provisions.   
13. First Trust employees 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 their personal devices.  
14. Messages sent through firm-approved communications methods were monitored, 
subject to review, and archived.  Messages sent through unapproved communications methods, 
such as unapproved applications on personal devices, were not monitored, subject to review or 
archived. 
15. First Trust policies were designed to address supervisors’ supervision of 
employees’ training in First Trust’s communications policies and adherence to First Trust’s 

 
 
4 
 
books and recordkeeping requirements.  Supervisory policies notified employees that electronic 
communications were subject to surveillance by First Trust.  First Trust had procedures for all 
employees, including supervisors, requiring annual self-attestations of compliance.  
16. First Trust, however, failed to implement a system of follow-up and review to 
determine that supervisors were reasonably following First Trust’s policies.  In addition, First 
Trust failed to implement sufficient monitoring to ensure that its recordkeeping and 
communications policies prohibiting the use of personal phones for business purposes were being 
followed.  
First Trust’s Recordkeeping Failures Across Its Brokerage Business 
17. In September 2021, the Commission staff commenced a risk-based initiative to 
investigate whether broker-dealers were properly retaining business-related messages sent and 
received on personal devices.  First Trust cooperated with the investigation by voluntarily 
interviewing a sampling of senior personnel and gathering and reviewing messages found on the 
individuals’ personal devices.  These personnel included senior leadership, such as managing 
directors and vice presidents. 
18. The Commission staff’s investigation uncovered pervasive off-channel 
communications at various seniority levels of First Trust’s broker-dealer.  The investigation 
determined that certain of the broker-dealer personnel sampled had engaged in at least some 
level of off-channel communications.  Overall, these personnel sent and received numerous off-
channel communications, involving other First Trust personnel and external contacts in the 
securities industry.  Within First Trust, significant numbers of supervisors participated in off-
channel communications. 
19. From at least August 2019, First Trust personnel sent and received off-channel 
messages that concerned the broker-dealer’s business. 
20. For example, from August 31, 2021 to March 1, 2022, a First Trust managing 
director exchanged numerous off-channel messages with at least six First Trust colleagues and at 
least one external contact in the securities industry.  Within First Trust, this managing director 
communicated off-channel with junior employees under the manager’s supervision.  These 
messages related to the broker-dealer’s business as such. 
21. In addition, from August 31, 2021 to March 1, 2022, a First Trust senior manager 
exchanged numerous off-channel messages with at least eight First Trust colleagues and at least 
six external contacts in the securities industry.  Within First Trust, this senior manager 
communicated off-channel with junior employees under the manager’s supervision.  These 
messages related to the broker-dealer’s business as such. 
First Trust’s Failure to Preserve Required Records Potentially 
Compromised and Delayed Commission Matters 
22. Between August 2019 and the present, First Trust received and responded to 
Commission subpoenas for documents and/or records requests in Commission investigations.  

 
 
5 
 
By failing to maintain and preserve required records relating to its business, First Trust likely 
deprived the Commission of these off-channel communications in various investigations. 
First Trust’s Violations and Failure to Supervise 
23. As a result of the conduct described above, from at least August 2019 through the 
date of this Order, Respondent willfully
2
 violated Section 17(a) of the Exchange Act and Rule 
17a-4(b)(4) thereunder, which require broker-dealers to preserve for at least three years originals 
of all communications received and copies of all communications sent relating to its business as 
such.   
24. As a result of the conduct described above, Respondent failed reasonably to 
supervise its employees with a view to preventing or detecting certain of its employees’ 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.  
First Trust’s Remedial Efforts 
25. In determining to accept the Offer, the Commission considered steps promptly 
undertaken by First Trust in part before the Commission’s inquiry, and cooperation afforded the 
Commission staff.  Since 2003, First Trust has required its customer-facing salespeople to use 
firm-issued devices for business communications.  Between 2013 and 2015, First Trust began 
migrating employees to firm-issued devices which allowed employees to utilize on-channel texting 
that was retained and subject to surveillance.  Since 2015, all new First Trust registered 
representatives have been issued mandatory firm devices at the time that they are hired, and 
currently, almost all First Trust employees have firm-issued devices. 
Undertakings 
26. Prior to this action, Respondent enhanced its policies and procedures and 
increased training concerning the use of approved communications methods, including on 
personal devices.  In addition, Respondent has undertaken to: 
27. Independent Compliance Consultant. 
a.  First Trust shall retain, within thirty (30) days of the entry of this Order, the 
services of an independent compliance consultant (“Compliance Consultant”) that is not 
 
2
  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange 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)).  There is no requirement that the actor “also be aware that he is violating 
one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in The 
Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 
structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 
2019) (setting forth the showing required to establish that a person has “willfully omit[ted]” 
material information from a required disclosure in violation of Section 207 of the Advisers Act). 

 
 
6 
 
unacceptable to the Commission staff.  The Compliance Consultant’s compensation and 
expenses shall be borne exclusively by First Trust. 
 
b.  First Trust will oversee the work of the Compliance Consultant. 
 
c.  First Trust shall provide to the Commission staff, within sixty (60) days of the 
entry of this Order, a copy of the engagement letter detailing the Compliance 
Consultant’s responsibilities, which shall include a comprehensive compliance review as 
described below.  First Trust shall require that, within ninety (90) days of the date of the 
engagement letter, the Compliance Consultant conduct: 
 
i.  A comprehensive review of First Trust’s supervisory, compliance, and 
other policies and procedures designed to ensure that First Trust’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. 
 
ii.  A comprehensive review of training conducted by First Trust 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 First Trust personnel certify in writing on a quarterly basis that they 
are complying with preservation requirements.  
 
iii.  An assessment of the surveillance program measures implemented by 
First Trust 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. 
 
iv.  An assessment of the technological solutions that First Trust has begun 
implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that First Trust personnel will use 
the technological solutions going forward and a review of the measures employed 
by First Trust to track employee usage of new technological solutions.  
 
v.  An assessment of the measures used by First Trust to prevent the use of 
unauthorized communications methods for business communications by 
employees.  This assessment should include, but not be limited to, a review of 
First Trust’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).   
 
vi.  A review of First Trust’s electronic communications surveillance 
routines to ensure that electronic communications through approved 

 
 
7 
 
communications methods found on Personal Devices are incorporated into First 
Trust’s overall communications surveillance program.   
 
vii.  A comprehensive review of the framework adopted by First Trust to 
address instances of non-compliance by First Trust employees with First Trust’s 
policies and procedures concerning the use of Personal Devices to communicate 
about First Trust business in the past.  This review shall include a survey of how 
First Trust determined which employees failed to comply with First Trust policies 
and procedures, the corrective action carried out, an evaluation of who violated 
policies and why, what penalties were imposed, and whether penalties were 
handed out consistently across business lines and seniority levels.   
 
d.  First Trust shall require that, within forty-five (45) days after completion of the 
review set forth in sub-paragraphs c.i. through c.vii. above, the Compliance Consultant 
shall submit a detailed written report of its findings to First Trust and to the Commission 
staff (the “Report”).  First Trust shall require that the Report include a description of the 
review performed, the names of the individuals who performed the review, the 
conclusions reached, the Compliance Consultant’s recommendations for changes in or 
improvements to First Trust’s policies and procedures, and a summary of the plan for 
implementing the recommended changes in or improvements to First Trust’s policies and 
procedures. 
 
e.  First Trust shall adopt all recommendations contained in the Report within 
ninety (90) days of the date of the Report; provided, however, that within forty-five (45) 
days after the date of the Report, First Trust shall advise the Compliance Consultant and 
the Commission staff in writing of any recommendations that First Trust considers to be 
unduly burdensome, impractical, or inappropriate.  With respect to any recommendation 
that First Trust considers unduly burdensome, impractical, or inappropriate, First Trust 
need not adopt such recommendation at that time, but shall propose in writing an 
alternative policy, procedure, or disclosure designed to achieve the same objective or 
purpose. 
 
f.  As to any recommendation concerning First Trust’s policies or procedures on 
which First Trust and the Compliance Consultant do not agree, First Trust and the 
Compliance Consultant shall attempt in good faith to reach an agreement within sixty 
(60) days after the date of the Report.  Within fifteen (15) days after the conclusion of the 
discussion and evaluation by First Trust and the Compliance Consultant, First Trust shall 
require that the Compliance Consultant inform First Trust and the Commission staff in 
writing of the Compliance Consultant’s final determination concerning any 
recommendation that First Trust considers to be unduly burdensome, impractical, or 
inappropriate.  First Trust shall abide by the determinations of the Compliance Consultant 
and, within sixty (60) days after final agreement between First Trust and the Compliance 
Consultant or final determination by the Compliance Consultant, whichever occurs first, 
First Trust shall adopt and implement all of the recommendations that the Compliance 
Consultant deems appropriate. 
 

 
 
8 
 
g.  First Trust shall cooperate fully with the Compliance Consultant and shall 
provide the Compliance Consultant with access to such of First Trust’s files, books, 
records, and personnel as are reasonably requested by the Compliance Consultant for 
review. 
 
h. First Trust shall not have the authority to terminate the Compliance Consultant 
or substitute another compliance consultant for the initial Compliance Consultant, 
without the prior written approval of the Commission staff.  First Trust shall compensate 
the Compliance Consultant and persons engaged to assist the Compliance Consultant for 
services rendered under this Order at their reasonable and customary rates. 
 
i.  For the period of engagement and for a period of two years from completion of 
the engagement, First Trust shall not (i) retain the Compliance Consultant for any other 
professional services outside of the services described in this Order; (ii) enter into any 
other professional relationship with the Compliance Consultant, including any 
employment, consultant, attorney-client, auditing or other professional relationship; or 
(iii) enter, without prior written consent of the Commission staff, into any such 
professional relationship with any of the Compliance Consultant’s present or former 
affiliates, employers, directors, officers, employees, or agents acting in their capacity as 
such. 
 
j.  The Report by the Compliance Consultant will likely include confidential 
financial, proprietary, competitive business or commercial information.  Public disclosure 
of the Report could discourage cooperation, impede pending or potential government 
investigations or undermine the objectives of the reporting requirement.  For these 
reasons, among others, the Report and the contents thereof are intended to remain and 
shall remain non-public, except (1) pursuant to court order, (2) as agreed to by the parties 
in writing, (3) to the extent that the Commission determines in its sole discretion that 
disclosure would be in furtherance of the Commission’s discharge of its duties and 
responsibilities, or (4) is otherwise required by law. 
 
28. One-Year Evaluation.  First Trust shall require the Compliance Consultant to 
assess First Trust’s program for the preservation, as required under the federal securities laws, of 
electronic communications, including those found on Personal Devices, commencing one year 
after submitting the Report required by Paragraph 27.d above.  First Trust shall require this 
review to evaluate First Trust’s progress in the areas described in Paragraph 27.c.i-vii above.  
After this review, First Trust shall require the Compliance Consultant to submit a report (the 
“One Year Report”) to First Trust and the Commission staff and shall ensure that the One Year 
Report includes an updated assessment of First Trust’s policies and procedures with regard to the 
preservation of electronic communications (including those found on Personal Devices), training, 
surveillance programs, and technological solutions implemented in the prior year period.  
29. Reporting Discipline Imposed.  For two years following the entry of this Order, 
First Trust shall notify the Commission staff as follows upon the imposition of any discipline 
imposed by First Trust, including, but not limited to, written warnings, loss of any pay, bonus, or 
incentive compensation, or the termination of employment, with respect to any employee found to 

 
 
9 
 
have violated First Trust’s policies and procedures concerning the preservation of electronic 
communications, including those found on Personal Devices:  at least 48 hours before the filing of 
a Form U-5, or within ten (10) days of the imposition of other discipline.   
30. Recordkeeping.  First Trust 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. 
31. Deadlines.  For good cause shown, the Commission staff may extend any of the 
procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 
calendar days, except that if the last day falls on a weekend or federal holiday, the next business 
day shall be considered to be the last day. 
32. Certification.  First Trust 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 Anne C. McKinley, Assistant Regional Director, 
Division of Enforcement, Chicago Regional Office, 175 West Jackson Boulevard, Suite 1450, 
Chicago, Illinois 60604, 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, 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 comply with the undertakings enumerated in paragraphs 26 to 
32 above. 
  
 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $8,000,000 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.   
 

 
 
10 
 
 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  
 
(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 a cover letter identifying 
First Trust as a 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 Anne C. McKinley, Assistant 
Regional Director, Division of Enforcement, Chicago Regional Office, 175 West Jackson 
Boulevard, Suite 1450, Chicago, Illinois 60604.   
 
  
  

 
 
11 
 
 E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
be treated as penalties 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. 100700 / August 14, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-21996 

 

 

In the Matter of 

 

First Trust Portfolios L.P., 

 

Respondent. 

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 15(b) AND 21C 

OF THE SECURITIES EXCHANGE ACT OF 

1934, 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”) against First Trust Portfolios L.P. (“Respondent” or “First Trust”). 

 

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, Making Findings, 

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

 

III. 

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

 

 
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.  



 

 

2 

 

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 widespread and longstanding failure of First 

Trust employees throughout the firm, including at senior levels, to adhere to certain of these 

essential requirements and First Trust’s own policies.  Using their personal devices, these 

employees communicated both internally and externally by personal text messages (“off-channel 

communications”). 

3. From at least August 2019, First Trust employees sent and received off-channel 

communications that related to the business of the broker-dealer operated by First Trust.  

Respondent did not maintain or preserve the substantial majority of these written 

communications.  Respondent’s failure was firm-wide, and involved employees at various levels 

of authority.  As a result, First Trust violated Section 17(a) of the Exchange Act and Rule 

17a-4(b)(4) thereunder. 

4. First Trust’s supervisors, who were responsible for supervising junior employees, 

routinely communicated off-channel using their personal devices.  In fact, senior managers and 

other First Trust employees responsible for supervising junior employees themselves failed to 

comply with First Trust’s policies by communicating using non-First Trust approved methods on 

their personal devices about First Trust’s broker-dealer business.  

5. First Trust’s widespread failure to implement its policies and procedures that 

prohibit such communications led to its failure to reasonably supervise its employees within the 

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

6. During the time period that First Trust failed to maintain and preserve off-channel 

communications that its employees sent and received related to the broker-dealer’s business, First 

Trust received and responded to Commission subpoenas for documents and/or records requests 

in Commission investigations.  As a result, First Trust’s recordkeeping failures likely impacted 

the Commission’s ability to carry out its regulatory functions and investigate violations of the 

federal securities laws across these investigations.   

7. Commission staff uncovered First Trust’s misconduct after commencing a 

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

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

program of remediation.  As set forth in the Undertakings below, First Trust will retain an 

independent compliance consultant to review and assess First Trust’s remedial steps relating to 

its recordkeeping practices, policies and procedures, related supervisory practices, and 

employment actions. 



 

 

3 

 

Respondent 

8. First Trust Portfolios L.P. is an Illinois limited partnership with its principal 

office in Wheaton, Illinois and is registered with the Commission as a broker-dealer. 

Recordkeeping Requirements under the Exchange Act 

9. 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. 

10. 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 created in 

accordance with other Commission rules, and certain other records produced by broker-dealers, 

must be maintained and produced promptly to Commission representatives.  The rules adopted 

under Section 17(a)(1) of the Exchange Act, including Rule 17a-4(b)(4), require that broker-

dealers preserve in an easily accessible place originals of all communications received and 

copies of all communications sent relating to the firm’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.  

11. 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). 

First Trust’s Policies and Procedures 

12. First Trust maintained certain policies and procedures designed to ensure the 

retention of business-related records, including electronic communications, in compliance with 

the relevant recordkeeping provisions.   

13. First Trust employees 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 their personal devices.  

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

subject to review, and archived.  Messages sent through unapproved communications methods, 

such as unapproved applications on personal devices, were not monitored, subject to review or 

archived. 

15. First Trust policies were designed to address supervisors’ supervision of 

employees’ training in First Trust’s communications policies and adherence to First Trust’s 



 

 

4 

 

books and recordkeeping requirements.  Supervisory policies notified employees that electronic 

communications were subject to surveillance by First Trust.  First Trust had procedures for all 

employees, including supervisors, requiring annual self-attestations of compliance.  

16. First Trust, however, failed to implement a system of follow-up and review to 

determine that supervisors were reasonably following First Trust’s policies.  In addition, First 

Trust failed to implement sufficient monitoring to ensure that its recordkeeping and 

communications policies prohibiting the use of personal phones for business purposes were being 

followed.  

First Trust’s Recordkeeping Failures Across Its Brokerage Business 

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

investigate whether broker-dealers were properly retaining business-related messages sent and 

received on personal devices.  First Trust cooperated with the investigation by voluntarily 

interviewing a sampling of senior personnel and gathering and reviewing messages found on the 

individuals’ personal devices.  These personnel included senior leadership, such as managing 

directors and vice presidents. 

18. The Commission staff’s investigation uncovered pervasive off-channel 

communications at various seniority levels of First Trust’s broker-dealer.  The investigation 

determined that certain of the broker-dealer personnel sampled had engaged in at least some 

level of off-channel communications.  Overall, these personnel sent and received numerous off-

channel communications, involving other First Trust personnel and external contacts in the 

securities industry.  Within First Trust, significant numbers of supervisors participated in off-

channel communications. 

19. From at least August 2019, First Trust personnel sent and received off-channel 

messages that concerned the broker-dealer’s business. 

20. For example, from August 31, 2021 to March 1, 2022, a First Trust managing 

director exchanged numerous off-channel messages with at least six First Trust colleagues and at 

least one external contact in the securities industry.  Within First Trust, this managing director 

communicated off-channel with junior employees under the manager’s supervision.  These 

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

21. In addition, from August 31, 2021 to March 1, 2022, a First Trust senior manager 

exchanged numerous off-channel messages with at least eight First Trust colleagues and at least 

six external contacts in the securities industry.  Within First Trust, this senior manager 

communicated off-channel with junior employees under the manager’s supervision.  These 

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

First Trust’s Failure to Preserve Required Records Potentially 

Compromised and Delayed Commission Matters 

22. Between August 2019 and the present, First Trust received and responded to 

Commission subpoenas for documents and/or records requests in Commission investigations.  



 

 

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By failing to maintain and preserve required records relating to its business, First Trust likely 

deprived the Commission of these off-channel communications in various investigations. 

First Trust’s Violations and Failure to Supervise 

23. As a result of the conduct described above, from at least August 2019 through the 

date of this Order, Respondent willfully2 violated Section 17(a) of the Exchange Act and Rule 

17a-4(b)(4) thereunder, which require broker-dealers to preserve for at least three years originals 

of all communications received and copies of all communications sent relating to its business as 

such.   

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

supervise its employees with a view to preventing or detecting certain of its employees’ 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.  

First Trust’s Remedial Efforts 

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

undertaken by First Trust in part before the Commission’s inquiry, and cooperation afforded the 

Commission staff.  Since 2003, First Trust has required its customer-facing salespeople to use 

firm-issued devices for business communications.  Between 2013 and 2015, First Trust began 

migrating employees to firm-issued devices which allowed employees to utilize on-channel texting 

that was retained and subject to surveillance.  Since 2015, all new First Trust registered 

representatives have been issued mandatory firm devices at the time that they are hired, and 

currently, almost all First Trust employees have firm-issued devices. 

Undertakings 

26. Prior to this action, Respondent enhanced its policies and procedures and 

increased training concerning the use of approved communications methods, including on 

personal devices.  In addition, Respondent has undertaken to: 

27. Independent Compliance Consultant. 

a.  First Trust shall retain, within thirty (30) days of the entry of this Order, the 

services of an independent compliance consultant (“Compliance Consultant”) that is not 

 
2  “Willfully,” for purposes of imposing relief under Section 15(b) of the Exchange 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)).  There is no requirement that the actor “also be aware that he is violating 

one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965).  The decision in The 

Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently 

structured statutory provision, does not alter that standard.  922 F.3d 468, 478-79 (D.C. Cir. 

2019) (setting forth the showing required to establish that a person has “willfully omit[ted]” 

material information from a required disclosure in violation of Section 207 of the Advisers Act). 



 

 

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unacceptable to the Commission staff.  The Compliance Consultant’s compensation and 

expenses shall be borne exclusively by First Trust. 

 

b.  First Trust will oversee the work of the Compliance Consultant. 

 

c.  First Trust shall provide to the Commission staff, within sixty (60) days of the 

entry of this Order, a copy of the engagement letter detailing the Compliance 

Consultant’s responsibilities, which shall include a comprehensive compliance review as 

described below.  First Trust shall require that, within ninety (90) days of the date of the 

engagement letter, the Compliance Consultant conduct: 

 

i.  A comprehensive review of First Trust’s supervisory, compliance, and 

other policies and procedures designed to ensure that First Trust’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. 

 

ii.  A comprehensive review of training conducted by First Trust 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 First Trust personnel certify in writing on a quarterly basis that they 

are complying with preservation requirements.  

 

iii.  An assessment of the surveillance program measures implemented by 

First Trust 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. 

 

iv.  An assessment of the technological solutions that First Trust has begun 

implementing to meet the record retention requirements of the federal securities 

laws, including an assessment of the likelihood that First Trust personnel will use 

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

by First Trust to track employee usage of new technological solutions.  

 

v.  An assessment of the measures used by First Trust to prevent the use of 

unauthorized communications methods for business communications by 

employees.  This assessment should include, but not be limited to, a review of 

First Trust’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).   

 

vi.  A review of First Trust’s electronic communications surveillance 

routines to ensure that electronic communications through approved 



 

 

7 

 

communications methods found on Personal Devices are incorporated into First 

Trust’s overall communications surveillance program.   

 

vii.  A comprehensive review of the framework adopted by First Trust to 

address instances of non-compliance by First Trust employees with First Trust’s 

policies and procedures concerning the use of Personal Devices to communicate 

about First Trust business in the past.  This review shall include a survey of how 

First Trust determined which employees failed to comply with First Trust policies 

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

policies and why, what penalties were imposed, and whether penalties were 

handed out consistently across business lines and seniority levels.   

 

d.  First Trust shall require that, within forty-five (45) days after completion of the 

review set forth in sub-paragraphs c.i. through c.vii. above, the Compliance Consultant 

shall submit a detailed written report of its findings to First Trust and to the Commission 

staff (the “Report”).  First Trust shall require that the Report include a description of the 

review performed, the names of the individuals who performed the review, the 

conclusions reached, the Compliance Consultant’s recommendations for changes in or 

improvements to First Trust’s policies and procedures, and a summary of the plan for 

implementing the recommended changes in or improvements to First Trust’s policies and 

procedures. 

 

e.  First Trust shall adopt all recommendations contained in the Report within 

ninety (90) days of the date of the Report; provided, however, that within forty-five (45) 

days after the date of the Report, First Trust shall advise the Compliance Consultant and 

the Commission staff in writing of any recommendations that First Trust considers to be 

unduly burdensome, impractical, or inappropriate.  With respect to any recommendation 

that First Trust considers unduly burdensome, impractical, or inappropriate, First Trust 

need not adopt such recommendation at that time, but shall propose in writing an 

alternative policy, procedure, or disclosure designed to achieve the same objective or 

purpose. 

 

f.  As to any recommendation concerning First Trust’s policies or procedures on 

which First Trust and the Compliance Consultant do not agree, First Trust and the 

Compliance Consultant shall attempt in good faith to reach an agreement within sixty 

(60) days after the date of the Report.  Within fifteen (15) days after the conclusion of the 

discussion and evaluation by First Trust and the Compliance Consultant, First Trust shall 

require that the Compliance Consultant inform First Trust and the Commission staff in 

writing of the Compliance Consultant’s final determination concerning any 

recommendation that First Trust considers to be unduly burdensome, impractical, or 

inappropriate.  First Trust shall abide by the determinations of the Compliance Consultant 

and, within sixty (60) days after final agreement between First Trust and the Compliance 

Consultant or final determination by the Compliance Consultant, whichever occurs first, 

First Trust shall adopt and implement all of the recommendations that the Compliance 

Consultant deems appropriate. 

 



 

 

8 

 

g.  First Trust shall cooperate fully with the Compliance Consultant and shall 

provide the Compliance Consultant with access to such of First Trust’s files, books, 

records, and personnel as are reasonably requested by the Compliance Consultant for 

review. 

 

h. First Trust shall not have the authority to terminate the Compliance Consultant 

or substitute another compliance consultant for the initial Compliance Consultant, 

without the prior written approval of the Commission staff.  First Trust shall compensate 

the Compliance Consultant and persons engaged to assist the Compliance Consultant for 

services rendered under this Order at their reasonable and customary rates. 

 

i.  For the period of engagement and for a period of two years from completion of 

the engagement, First Trust shall not (i) retain the Compliance Consultant for any other 

professional services outside of the services described in this Order; (ii) enter into any 

other professional relationship with the Compliance Consultant, including any 

employment, consultant, attorney-client, auditing or other professional relationship; or 

(iii) enter, without prior written consent of the Commission staff, into any such 

professional relationship with any of the Compliance Consultant’s present or former 

affiliates, employers, directors, officers, employees, or agents acting in their capacity as 

such. 

 

j.  The Report by the Compliance Consultant will likely include confidential 

financial, proprietary, competitive business or commercial information.  Public disclosure 

of the Report could discourage cooperation, impede pending or potential government 

investigations or undermine the objectives of the reporting requirement.  For these 

reasons, among others, the Report and the contents thereof are intended to remain and 

shall remain non-public, except (1) pursuant to court order, (2) as agreed to by the parties 

in writing, (3) to the extent that the Commission determines in its sole discretion that 

disclosure would be in furtherance of the Commission’s discharge of its duties and 

responsibilities, or (4) is otherwise required by law. 

 

28. One-Year Evaluation.  First Trust shall require the Compliance Consultant to 

assess First Trust’s program for the preservation, as required under the federal securities laws, of 

electronic communications, including those found on Personal Devices, commencing one year 

after submitting the Report required by Paragraph 27.d above.  First Trust shall require this 

review to evaluate First Trust’s progress in the areas described in Paragraph 27.c.i-vii above.  

After this review, First Trust shall require the Compliance Consultant to submit a report (the 

“One Year Report”) to First Trust and the Commission staff and shall ensure that the One Year 

Report includes an updated assessment of First Trust’s policies and procedures with regard to the 

preservation of electronic communications (including those found on Personal Devices), training, 

surveillance programs, and technological solutions implemented in the prior year period.  

29. Reporting Discipline Imposed.  For two years following the entry of this Order, 

First Trust shall notify the Commission staff as follows upon the imposition of any discipline 

imposed by First Trust, including, but not limited to, written warnings, loss of any pay, bonus, or 

incentive compensation, or the termination of employment, with respect to any employee found to 



 

 

9 

 

have violated First Trust’s policies and procedures concerning the preservation of electronic 

communications, including those found on Personal Devices:  at least 48 hours before the filing of 

a Form U-5, or within ten (10) days of the imposition of other discipline.   

30. Recordkeeping.  First Trust 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. 

31. Deadlines.  For good cause shown, the Commission staff may extend any of the 

procedural dates relating to the undertakings.  Deadlines for procedural dates shall be counted in 

calendar days, except that if the last day falls on a weekend or federal holiday, the next business 

day shall be considered to be the last day. 

32. Certification.  First Trust 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 Anne C. McKinley, Assistant Regional Director, 

Division of Enforcement, Chicago Regional Office, 175 West Jackson Boulevard, Suite 1450, 

Chicago, Illinois 60604, 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, 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 comply with the undertakings enumerated in paragraphs 26 to 

32 above. 

  

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

penalty in the amount of $8,000,000 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.   

 



 

 

10 

 

 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  

 

(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 a cover letter identifying 

First Trust as a 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 Anne C. McKinley, Assistant 

Regional Director, Division of Enforcement, Chicago Regional Office, 175 West Jackson 

Boulevard, Suite 1450, Chicago, Illinois 60604.   

 

  

  



 

 

11 

 

 E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 

be treated as penalties 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