The U.S. securities regulator has collected thousands of staff messages from more than a dozen major investment companies, escalating its probe into Wall Street’s use of private messaging apps, said four people with direct knowledge of the matter.

Previously, the Securities and Exchange Commission (SEC) had asked the companies to internally review the messages in its investigation of Wall Street’s use of WhatsApp, Signal and other unapproved messaging apps to discuss work.

The two-year crackdown into potential breaches of record-keeping rules initially targeted broker dealers, netting regulators over $2 billion in fines.

While Reuters and other media have reported that the SEC’s “off-channel” communication probe has expanded to investment advisers, its move to review thousands of their staff messages has not previously been reported. It marks an escalation of the investigation and raises the stakes for the companies and the executives concerned by exposing their conduct to SEC scrutiny.

“It increases risk,” one source said. “The more information you give the SEC, the more you fuel the beast.”

In the latest phase of the probe of more than a dozen investment advisers, the SEC has in recent months asked for messages on personal devices or applications during the first half of 2021 that discuss business, the sources said. It has targeted a selection of employees, in some cases as many as a dozen, including senior executives.

The firms include Carlyle Group (CG.O), Apollo Global Management (APO.N), KKR & Co (KKR.N), TPG (TPG.O), and Blackstone (BX.N), according to three people with direct knowledge of the matter, as well as some hedge funds, including Citadel, said a different person with direct knowledge.

The executives gave their personal phones and other devices to their employers or lawyers to be copied, and messages discussing business have been handed to the SEC, three people said.

That is in contrast to the broker-dealer probes. In those cases, the SEC asked companies to review staff messages and report to the agency how many discussed work. SEC staff reviewed only a sample of messages themselves, according to three sources with knowledge of the previous investigations.

The sources spoke on the condition of anonymity because SEC investigations are confidential.

At least 16 firms including Carlyle, Apollo, KKR, TPG, and Blackstone, have disclosed that the SEC is probing their communications. The firms did not provide further details and did not comment for this story. A spokesperson for Citadel declined to comment.

Government investigations are not evidence of wrongdoing and do not necessarily lead to charges.

An SEC spokesperson declined to comment. Chair Gary Gensler has defended the communications scrutiny, saying record-keeping rules are critical in helping the SEC guard against wrongdoing.

“Now that they have all that data – it is very possible that the SEC will find compliance failures in there somewhere that have nothing to do with the off-channel communications record-keeping issues,” said Jaclyn Grodin, a lawyer at Goulston & Storrs who is not involved in the investigation.

Private fund fees and expenses, conflicts of interest and preferential treatment of investors are issues the SEC is increasingly focusing on, she noted.

‘SHOOTING FISH’
The problem of keeping tabs on staff communications has dogged Wall Street compliance departments for years. Because companies do not surveil personal messaging channels, using them to discuss business puts SEC-regulated employers in breach of requirements to record all business communications.

The SEC began to home in on Wall Street’s record-keeping problem when JPMorgan Chase (JPM.N) failed to provide documents from at least 2018 pertaining to an unrelated probe, according to a 2021 settlement in which the bank agreed to pay the SEC $125 million to resolve charges over record-keeping lapses.

Suspecting that off-channel chat about deals, trades and other business was rife on Wall Street, the SEC in 2021 opened an inquiry into other broker-dealers’ communications, said two sources. The misconduct proved so pervasive that the agency has been “shooting fish in a barrel,” one said.

The probe is shaping up to be Gensler’s signature Wall Street enforcement initiative, netting multiple big names including Wells Fargo (WFC.N), Bank of America (BAC.N), Goldman Sachs (GS.N) and Morgan Stanley .

It has generated millions in fees for attorneys, with firms hiring dozens of lawyers to represent both the company and executives worried about their exposure, according to several sources.

‘INVASIVE’
The SEC began approaching investment advisers in October 2022, Reuters previously reported. As with broker-dealers, the SEC initially sought details on investment advisers’ record-keeping policies. It then identified a group of executives and asked the firms to search their devices and report back on what they found.

But the firms resisted, arguing their record-keeping requirements are narrower than broker-dealers’.

In a January letter led by the Managed Funds Association, the industry said the SEC’s request was “invasive” and raised privacy issues. Bloomberg previously reported the letter.

The SEC later demanded that the investment advisers hand over the messages, the sources said.

The agency is ignoring important differences in investment advisers’ recordkeeping requirements, said Jennifer Han, the MFA’s executive vice president and chief counsel.

“Unilaterally expanding the rules by enforcement actions sidesteps due process and creates a dangerous precedent,” she said in a statement.