We are all no doubt painfully familiar with the sting of ‘buyer’s remorse’ – that feeling that we made the wrong purchasing choice, that another option might be better. It’s particularly keenly felt in an age where we know an even more advanced version of a product is sure to come out if we wait a few months.
A recent Securities and Exchange Commission (SEC) order has left 16 firms feeling “settlor’s remorse,” after their joint motion to “modify or amend and stay settled orders” related to previous off-channel communication enforcements was denied by the regulator.
All things created equal …
The SEC issued its order on April 14, 2025, “denying motions to modify or amend and stay settled orders.” The regulator’s history of the case set out that:
“Between September 2023 and September 2024, the Securities and Exchange Commission issued sixteen separate orders instituting administrative and cease-and-desist proceedings, making findings, and imposing remedial sanctions and a cease-and-desist order against the respondents.”
The Commission issued these orders “after accepting Respondents’ signed offers of settlement,” which included the respondents admitting to:
“Certain violations related to their employees’ communications on personal devices (“off-channel communications”) … [agreeing] to comply with undertakings designed to remediate their violations (the “Settled Orders”)”
According to the SEC Order, the 16 firms requested that the Settled Orders be modified to “equalize” undertakings within the agreements to bring the firms’ ongoing compliance responsibilities in line with those contained within more recent settlements.
The requested amendments included:
- Removal of a requirement that respondents engage an independent compliance consultant over approximately two years, to be replaced with a one-time internal audit
- Removal of a requirement for respondents to report employee discipline regarding off-channel communications to the SEC for a period of two years
- Remove the SEC’s order that respondents comply with their undertakings
The latter point includes the argument that compliance with the SEC’s order requires the firms to file a Membership Continuation Application with the Financial Industry Regulatory Authority (FINRA) and submit to heightened FINRA supervision for a period of six years.
The 16 firms suggest that the latter settlements see firms only needing to undertake ongoing compliance actions on a “voluntary” basis, and that they are under an unfair financial and logistical burden to meet the SEC’s conditions in their earlier settlements.
Request denied
In a blunt response, the SEC order said:
“The Division of Enforcement opposes the Respondent’s motions.”
The SEC ruling found that respondents “do not make the showing necessary to modify the Settled Orders.” The Commission has “long emphasized the ‘strong interest’ in maintaining the finality of settlements,” and responsibility lies with respondents to demonstrate “compelling” or “extraordinary” circumstances to modify a Settled Order.
The SEC Order laid out that the respondent’s primary argument is that it is “inequitable” to require their compliance with the undertakings laid out in their settlements that are not contained in subsequent settlements from January 2025 onwards.
The crux of the argument is that latter settlements involve “similarly situated respondents” whose terms were “better” than those of previously agreed settlements. The respondents sought to utilize Rule 60(b)(5) (“Relief from a judgment order”) on the grounds that the orders they agreed to were “no longer equitable,” with the potential to establish that “a significant change in circumstances warrants revision of the decree.”
There is scope to change Settled Orders where new factual conditions “make compliance with the decree substantially more onerous.” However, the SEC ruled that there had been no such significant changes to circumstances that would warrant changes to previously agreed settlements:
“The only arguably changed circumstance they identify is that later parties negotiated what Respondents believe to be better settlement terms. That is not the type of compelling circumstance that justifies altering the terms of the Respondents’ settlements.”
Settlor’s remorse
The SEC’s Order neatly summarizes the ‘Catch-22’ that firms find themselves in when negotiating a settlement with the regulator:
“The decision to settle early carries both an inherent risk and potential benefit: Though the settling party must act with relatively less information than those that settle later, it avoids the time and expense of further negotiation and litigation.”
Firms that agree to an earlier settlement benefit from reducing the financial and logistical demands of a potentially lengthy legal process, and by removing themselves from the often-unflattering news cycle at an earlier stage. However, they also potentially miss later opportunities to negotiate more beneficial terms.
The SEC “has long rejected motions to modify … settled orders simply because respondents seek to bring their terms in line with sanctions imposed by other parties,” and in this instance was “unpersuaded by the respondent’s claims that they are … being penalized for settling earlier than other respondents.”
The Order points out that “Respondents themselves agreed to the undertakings to which they now object,” highlighting that the 16 firms had previously admitted to the off-channel communications violations and committed to the suggested course of remedial action. As far as the regulator is concerned:
“Settlor’s remorse … does not justify upsetting a final, agreed-upon settled order.”
SEC sea change
Over recent months we have seen changes at the SEC resulting in pivots in policy, away from a previously crypto-sceptic stance and towards a pro-innovation stance on AI. It is interesting, then, to see the regulator stick to its guns on the previously set compliance requirements of firms found in violation of off-channel communications responsibilities when challenged.
The SEC Order contains dissenting remarks from Commissioner Hester Peirce, who believes that the “unique circumstances” of this case mean the SEC should “take the unusual but warranted step of modifying the Settled Orders.”
She identifies that the terms of most of the off-channel communications settlements reached between December 2021 and October 2024 were “nearly identical,” including requirements to engage external compliance consultants to assess policies, make changes to policies based on their recommendations, report instances where employees violating off-channel communications policies were disciplined, and maintain records of compliance with these undertakings for six years.
Peirce highlights that the “ongoing nature of the reporting and recordkeeping requirements in the undertakings impose significant collateral consequences” on the respondents, resulting in them being “subject to costly and unnecessary additional supervision while other similarly situated firms are not” – with Peirce believing that “something more significant is going on in these proceedings.”
While it may be glib to suggest that firms not wishing to be subject to “unfair” compliance burdens post-settlement could have avoided them altogether if they had not lapsed on off-channel communications, Peirce is right to identify that the SEC’s ruling here hints at something more significant.
Had the SEC bowed to pressure and given the 16 firms more favorable terms in line with those in more recent settlements, the regulator would have opened the floodgates for similar requests for better terms from every single firm involved in an off-channel communications enforcement since 2021.
By holding fast, the regulator has sent a clear message – while its stance on other areas of regulation is in flux, its commitment to upholding off-channel communications and recordkeeping standards is not subject to change. While firms settling with the regulator post-January 2025 might be doing so under better terms, those looking to secure the best outcomes should be avoiding situations where they must settle altogether.
Regulatory expectations around off-channel communications aren’t going anywhere – and firms need to ensure they’re comprehensively capturing and securely storing all their business communications data to meet them. Firms that settle with regulators like the SEC might do so on “better terms” going forward, but avoiding off-channel communications violations altogether is the best course to avoid “settlor’s remorse.”
