Top hedge funds and private equity firms including Citadel, KKR & Co. and Blackstone Inc. are discussing ways to blunt penalties by the Securities and Exchange Commission stemming from their use of disappearing messaging apps.
With the regulator stepping up efforts to police Wall Street’s electronic communications, the firms have held talks about how to design a legal strategy and what potential settlements could look like, according to people familiar with the discussions. Their goal is to minimize any fines and ensure that if they reach a settlement, no firm is singled out for a harsher penalty, said the people, who weren’t authorized to speak publicly.
And while Citadel has talked with the group, Ken Griffin’s Miami-based fund is still prepared to fight the regulator in court if necessary, the people said. Citadel is pushing for firms to resist, arguing that the rules requiring brokerages to keep records don’t apply to hedge funds and private equity, the people said.
The firms are seeking to limit fallout from a sweeping probe into whether financial companies failed to preserve work texts sent by dealmakers and executives on their personal devices and messaging apps. The SEC is asserting that the once-widespread use of phones and apps like WhatsApp, Telegram and Signal broke the agency’s rules and made investigating securities crimes significantly harder.
Representatives for KKR, Blackstone, Citadel and the SEC declined to comment.
Each firm will have to negotiate with the regulator on its own, and the SEC has yet to accuse, sue or settle with any private equity firm or hedge fund about the matter. The regulator could ultimately decide against bringing actions against them.
Under SEC rules, many financial firms
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