In re Haitong International

 
 
UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 100708 / August 14, 2024 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-22005 
 
 
In the Matter of 
 
Haitong International 
Securities (USA) Inc.,  
 
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 Haitong International Securities (USA) Inc. (“Respondent” or 
“Haitong”). 
 
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 
Haitong personnel throughout Haitong, including at senior levels, to adhere to certain of these 
essential requirements and Haitong’s own policies.  Using their personal devices, these 
employees communicated both internally and externally by text messages, and/or other 
unapproved written communications platforms, such as WhatsApp (“off-channel 
communications”). 
3. From at least June 2019, Haitong personnel sent and received off-channel 
communications that related to the business of the broker-dealer operated by Haitong.  
Respondent did not maintain or preserve the substantial majority of these written 
communications.  Respondent’s failure was firm-wide and involved personnel at various levels 
of authority.  As a result, Haitong violated Section 17(a) of the Exchange Act and Rule 17a-
4(b)(4) thereunder. 
4. Haitong’s supervisors, who were responsible for supervising junior personnel, 
routinely communicated off-channel using their personal devices.  In fact, senior executives and 
a managing director responsible for supervising junior personnel themselves failed to comply 
with Haitong’s policies by communicating using non-Haitong approved methods on their 
personal devices about Haitong’s broker-dealer business. 
5. Haitong’s widespread failure to implement its policies and procedures that 
prohibit such communications led to its failure to reasonably supervise its personnel within the 
meaning of Section 15(b)(4)(E) of the Exchange Act.    
6. Commission staff uncovered Haitong’s misconduct after commencing a risk-
based initiative to investigate the use of off-channel and unpreserved communications at broker-
dealers.  Haitong has initiated a review of its recordkeeping failures, and begun a program of 
remediation.  As set forth in the Undertakings below, Haitong will retain an independent 
compliance consultant to review and assess Haitong’s remedial steps relating to its 
recordkeeping practices, policies and procedures, related supervisory practices, and employment 
actions. 
Respondent 
7. Haitong is a New York corporation with its principal office in New York, and is 
registered with the Commission as a broker-dealer.  It is a direct subsidiary of Haitong 
International Securities Group Limited, which is located in Hong Kong.  

3 
 
Recordkeeping Requirements under the Exchange Act 
8. 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. 
9. 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 for at least three years, the first two in an easily accessible place, originals of all 
communications received and copies of all 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.  
10. 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). 
Haitong’s Policies and Procedures 
11. Haitong maintained certain policies and procedures designed to ensure the 
retention of business-related records, including electronic communications, in compliance with 
the relevant recordkeeping provisions.   
12. Haitong 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.  
13. Messages sent through firm-approved communications methods were monitored, 
subject to review, and archived.  Messages sent through unapproved communications methods, 
such as WhatsApp and WeChat on personal devices, were not monitored, subject to review or 
archived. 
14. Haitong policies were designed to address supervisors’ supervision of personnel’s 
training in Haitong’s communications policies and adherence to Haitong’s books and 
recordkeeping requirements.  Supervisory policies notified personnel that electronic 
communications were subject to surveillance by Haitong.  Haitong had procedures for all 
personnel, including supervisors, requiring annual self-attestations of compliance.  

4 
 
15. Haitong, however, failed to implement a system of follow-up and review to 
determine that all personnel, including supervisors, were reasonably following Haitong’s 
policies.  While permitting personnel to use approved communications methods, including on 
personal phones, for business communications, Haitong failed to implement sufficient 
monitoring to ensure that its recordkeeping and communications policies were being followed.  
Haitong’s Recordkeeping Failures Across Its Brokerage Business 
16. 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.   
17. Haitong 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 senior executives and a managing 
director.  
18. The Commission staff’s investigation uncovered pervasive off-channel 
communications at all seniority levels of Haitong’s broker-dealer.  The investigation determined 
that nearly all 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 Haitong personnel, Haitong broker-dealer customers, and other 
participants in the securities industry.  Within Haitong, significant numbers of senior personnel 
participated in off-channel communications. 
19. From at least June 2019, Haitong personnel sent and received off-channel 
messages that concerned the broker-dealer’s business. 
20. For example, an executive officer exchanged numerous off-channel business-
related messages with at least three Haitong colleagues, including another executive and junior 
personnel under their supervision, one individual at another financial services firm, and eight 
other market participants. 
21. In addition, a managing director exchanged numerous off-channel business-
related messages with at least three Haitong colleagues, all of whom were under their 
supervision, including one director, three individuals at another financial services firm, and three 
other market participants. 
22. Furthermore, an executive director exchanged numerous off-channel business-
related messages with at least three Haitong colleagues, one of whom they supervised, and two 
other market participants. 

5 
 
Haitong’s Violations and Failure to Supervise 
23. As a result of the conduct described above, from at least June 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. 
24. 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 personnel’s 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.  
Haitong’s Remedial Efforts 
25. In determining to accept the Offer, the Commission considered steps promptly 
undertaken by Haitong prior to and after being approached by Commission staff, and cooperation 
afforded the Commission staff. 
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, and began implementing significant changes to the technology available to 
personnel.  In addition, Respondent has undertaken to: 
27. Independent Compliance Consultant. 
a.  Haitong shall retain, within thirty (30) days of the entry of this Order, the 
services of an independent compliance consultant (“Compliance Consultant”) that is not 
unacceptable to the Commission staff.  The Compliance Consultant’s compensation and 
expenses shall be borne exclusively by Haitong. 
 
b.  Haitong will oversee the work of the Compliance Consultant. 
 
c.  Haitong 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.  Haitong shall require that, within ninety (90) days of the date of the 
engagement letter, the Compliance Consultant conduct: 
 
i.  A comprehensive review of Haitong’s supervisory, compliance, and 
other policies and procedures designed to ensure that Haitong’s electronic 
communications, including those found on personal electronic devices, including 
 
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.’”  
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)).  

6 
 
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 Haitong 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 Haitong 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 
Haitong 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 Haitong has begun 
implementing to meet the record retention requirements of the federal securities 
laws, including an assessment of the likelihood that Haitong personnel will use 
the technological solutions going forward and a review of the measures employed 
by Haitong to track employee usage of new technological solutions.  
 
v.  An assessment of the measures used by Haitong 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 
Haitong’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 Haitong’s electronic communications surveillance 
routines to ensure that electronic communications through approved 
communications methods found on Personal Devices are incorporated into 
Haitong’s overall communications surveillance program.   
 
vii.  A comprehensive review of the framework adopted by Haitong to 
address instances of non-compliance by Haitong personnel with Haitong’s 
policies and procedures concerning the use of Personal Devices to communicate 
about Haitong business in the past.  This review shall include a survey of how 
Haitong determined which personnel failed to comply with Haitong 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.  Haitong shall require that, within forty-five (45) days after completion of the 
review set forth in sub-paragraphs 27.c.i. through c.vii. above, the Compliance 
Consultant shall submit a detailed written report of its findings to Haitong and to the 

7 
 
Commission staff (the “Report”).  Haitong 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 Haitong’s policies and procedures, and a summary of the 
plan for implementing the recommended changes in or improvements to Haitong’s 
policies and procedures. 
 
e.  Haitong 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, Haitong shall advise the Compliance Consultant and the 
Commission staff in writing of any recommendations that Haitong considers to be unduly 
burdensome, impractical, or inappropriate.  With respect to any recommendation that 
Haitong considers unduly burdensome, impractical, or inappropriate, Haitong 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 Haitong’s policies or procedures on 
which Haitong and the Compliance Consultant do not agree, Haitong 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 Haitong and the Compliance Consultant, Haitong shall require that the 
Compliance Consultant inform Haitong and the Commission staff in writing of the 
Compliance Consultant’s final determination concerning any recommendation that 
Haitong considers to be unduly burdensome, impractical, or inappropriate.  Haitong shall 
abide by the determinations of the Compliance Consultant and, within sixty (60) days 
after final agreement between Haitong and the Compliance Consultant or final 
determination by the Compliance Consultant, whichever occurs first, Haitong shall adopt 
and implement all of the recommendations that the Compliance Consultant deems 
appropriate. 
 
g.  Haitong shall cooperate fully with the Compliance Consultant and shall 
provide the Compliance Consultant with access to such of Haitong’s files, books, records, 
and personnel as are reasonably requested by the Compliance Consultant for review. 
 
h.  Haitong 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.  Haitong 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 (2) years from 
completion of the engagement, Respondent 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 

8 
 
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) as otherwise required by law. 
 
28. One-Year Evaluation.  Haitong shall require the Compliance Consultant to assess 
Haitong’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.  Haitong shall require this review 
to evaluate Haitong’s progress in the areas described in Paragraph 27.c.i-vii above.  After this 
review, Haitong shall require the Compliance Consultant to submit a report (the “One Year 
Report”) to Haitong and the Commission staff and shall ensure that the One Year Report 
includes an updated assessment of Haitong’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 (2) years following the entry of this Order, 
Haitong shall notify the Commission staff as follows upon the imposition of any discipline 
imposed by Haitong, 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 
have violated Haitong’s policies and procedures concerning the preservation of electronic 
communications, including those found on Personal Devices: at least forty-eight (48) hours before 
the filing of a Form U-5, or within ten (10) days of the imposition of other discipline.   
30. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 
the One Year Report, Haitong will also have its Internal Audit function conduct a separate audit(s) 
to assess Haitong’s progress in the areas described in Paragraph 27.c.i-vii above.  After completion 
of this audit(s), Haitong shall ensure that Internal Audit submits a report to Haitong and to the 
Commission staff. 
31. Recordkeeping.  Haitong 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. 
32. 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. 

9 
 
33. Certification.  Haitong 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, 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 
33 above. 
  
 D. Respondent shall, within 14 days of the entry of this Order, pay a civil money 
penalty in the amount of $400,000 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  
 
(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 

10 
 
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 
Haitong 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 Thomas P. Smith, Jr., Associate 
Regional Director, Securities and Exchange Commission, 100 Pearl Street, Suite 20-100, New 
York, New York 10004-2616.   
 
 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. 100708 / August 14, 2024 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-22005 

 

 

In the Matter of 

 

Haitong International 

Securities (USA) Inc.,  

 

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 Haitong International Securities (USA) Inc. (“Respondent” or 

“Haitong”). 

 

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 

Haitong personnel throughout Haitong, including at senior levels, to adhere to certain of these 

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

employees communicated both internally and externally by text messages, and/or other 

unapproved written communications platforms, such as WhatsApp (“off-channel 

communications”). 

3. From at least June 2019, Haitong personnel sent and received off-channel 

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

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

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

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

4(b)(4) thereunder. 

4. Haitong’s supervisors, who were responsible for supervising junior personnel, 

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

a managing director responsible for supervising junior personnel themselves failed to comply 

with Haitong’s policies by communicating using non-Haitong approved methods on their 

personal devices about Haitong’s broker-dealer business. 

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

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

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

6. Commission staff uncovered Haitong’s misconduct after commencing a risk-

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

dealers.  Haitong has initiated a review of its recordkeeping failures, and begun a program of 

remediation.  As set forth in the Undertakings below, Haitong will retain an independent 

compliance consultant to review and assess Haitong’s remedial steps relating to its 

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

actions. 

Respondent 

7. Haitong is a New York corporation with its principal office in New York, and is 

registered with the Commission as a broker-dealer.  It is a direct subsidiary of Haitong 

International Securities Group Limited, which is located in Hong Kong.  



3 

 

Recordkeeping Requirements under the Exchange Act 

8. 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. 

9. 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 for at least three years, the first two in an easily accessible place, originals of all 

communications received and copies of all 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.  

10. 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). 

Haitong’s Policies and Procedures 

11. Haitong maintained certain policies and procedures designed to ensure the 

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

the relevant recordkeeping provisions.   

12. Haitong 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.  

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

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

such as WhatsApp and WeChat on personal devices, were not monitored, subject to review or 

archived. 

14. Haitong policies were designed to address supervisors’ supervision of personnel’s 

training in Haitong’s communications policies and adherence to Haitong’s books and 

recordkeeping requirements.  Supervisory policies notified personnel that electronic 

communications were subject to surveillance by Haitong.  Haitong had procedures for all 

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



4 

 

15. Haitong, however, failed to implement a system of follow-up and review to 

determine that all personnel, including supervisors, were reasonably following Haitong’s 

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

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

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

Haitong’s Recordkeeping Failures Across Its Brokerage Business 

16. 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.   

17. Haitong 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 senior executives and a managing 

director.  

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

communications at all seniority levels of Haitong’s broker-dealer.  The investigation determined 

that nearly all 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 Haitong personnel, Haitong broker-dealer customers, and other 

participants in the securities industry.  Within Haitong, significant numbers of senior personnel 

participated in off-channel communications. 

19. From at least June 2019, Haitong personnel sent and received off-channel 

messages that concerned the broker-dealer’s business. 

20. For example, an executive officer exchanged numerous off-channel business-

related messages with at least three Haitong colleagues, including another executive and junior 

personnel under their supervision, one individual at another financial services firm, and eight 

other market participants. 

21. In addition, a managing director exchanged numerous off-channel business-

related messages with at least three Haitong colleagues, all of whom were under their 

supervision, including one director, three individuals at another financial services firm, and three 

other market participants. 

22. Furthermore, an executive director exchanged numerous off-channel business-

related messages with at least three Haitong colleagues, one of whom they supervised, and two 

other market participants. 



5 

 

Haitong’s Violations and Failure to Supervise 

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

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

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

24. 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 personnel’s 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.  

Haitong’s Remedial Efforts 

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

undertaken by Haitong prior to and after being approached by Commission staff, and cooperation 

afforded the Commission staff. 

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, and began implementing significant changes to the technology available to 

personnel.  In addition, Respondent has undertaken to: 

27. Independent Compliance Consultant. 

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

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

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

expenses shall be borne exclusively by Haitong. 

 

b.  Haitong will oversee the work of the Compliance Consultant. 

 

c.  Haitong 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.  Haitong shall require that, within ninety (90) days of the date of the 

engagement letter, the Compliance Consultant conduct: 

 

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

other policies and procedures designed to ensure that Haitong’s electronic 

communications, including those found on personal electronic devices, including 

 
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.’”  

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)).  



6 

 

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 Haitong 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 Haitong 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 

Haitong 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 Haitong has begun 

implementing to meet the record retention requirements of the federal securities 

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

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

by Haitong to track employee usage of new technological solutions.  

 

v.  An assessment of the measures used by Haitong 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 

Haitong’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 Haitong’s electronic communications surveillance 

routines to ensure that electronic communications through approved 

communications methods found on Personal Devices are incorporated into 

Haitong’s overall communications surveillance program.   

 

vii.  A comprehensive review of the framework adopted by Haitong to 

address instances of non-compliance by Haitong personnel with Haitong’s 

policies and procedures concerning the use of Personal Devices to communicate 

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

Haitong determined which personnel failed to comply with Haitong 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.  Haitong shall require that, within forty-five (45) days after completion of the 

review set forth in sub-paragraphs 27.c.i. through c.vii. above, the Compliance 

Consultant shall submit a detailed written report of its findings to Haitong and to the 



7 

 

Commission staff (the “Report”).  Haitong 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 Haitong’s policies and procedures, and a summary of the 

plan for implementing the recommended changes in or improvements to Haitong’s 

policies and procedures. 

 

e.  Haitong 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, Haitong shall advise the Compliance Consultant and the 

Commission staff in writing of any recommendations that Haitong considers to be unduly 

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

Haitong considers unduly burdensome, impractical, or inappropriate, Haitong 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 Haitong’s policies or procedures on 

which Haitong and the Compliance Consultant do not agree, Haitong 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 Haitong and the Compliance Consultant, Haitong shall require that the 

Compliance Consultant inform Haitong and the Commission staff in writing of the 

Compliance Consultant’s final determination concerning any recommendation that 

Haitong considers to be unduly burdensome, impractical, or inappropriate.  Haitong shall 

abide by the determinations of the Compliance Consultant and, within sixty (60) days 

after final agreement between Haitong and the Compliance Consultant or final 

determination by the Compliance Consultant, whichever occurs first, Haitong shall adopt 

and implement all of the recommendations that the Compliance Consultant deems 

appropriate. 

 

g.  Haitong shall cooperate fully with the Compliance Consultant and shall 

provide the Compliance Consultant with access to such of Haitong’s files, books, records, 

and personnel as are reasonably requested by the Compliance Consultant for review. 

 

h.  Haitong 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.  Haitong 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 (2) years from 

completion of the engagement, Respondent 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 



8 

 

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) as otherwise required by law. 

 

28. One-Year Evaluation.  Haitong shall require the Compliance Consultant to assess 

Haitong’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.  Haitong shall require this review 

to evaluate Haitong’s progress in the areas described in Paragraph 27.c.i-vii above.  After this 

review, Haitong shall require the Compliance Consultant to submit a report (the “One Year 

Report”) to Haitong and the Commission staff and shall ensure that the One Year Report 

includes an updated assessment of Haitong’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 (2) years following the entry of this Order, 

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

imposed by Haitong, 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 

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

communications, including those found on Personal Devices: at least forty-eight (48) hours before 

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

30. Internal Audit.  In addition to the Compliance Consultant’s review and issuance of 

the One Year Report, Haitong will also have its Internal Audit function conduct a separate audit(s) 

to assess Haitong’s progress in the areas described in Paragraph 27.c.i-vii above.  After completion 

of this audit(s), Haitong shall ensure that Internal Audit submits a report to Haitong and to the 

Commission staff. 

31. Recordkeeping.  Haitong 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. 

32. 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. 



9 

 

33. Certification.  Haitong 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, 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 

33 above. 

  

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

penalty in the amount of $400,000 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  

 

(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 



10 

 

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 

Haitong 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 Thomas P. Smith, Jr., Associate 

Regional Director, Securities and Exchange Commission, 100 Pearl Street, Suite 20-100, New 

York, New York 10004-2616.   

 

 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