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Gossip and inside information are worth a lot more on Wall Street than almost everywhere else. It can make people unimaginably rich. That’s why a sweeping federal investigation into banks’ use of private messaging applications such as WhatsApp is unnerving executives, managers and traders whose lips may have been a little too loose.

Sure, the Securities and Exchange Commission’s investigation may just be routine — a reminder that bankers and traders aren’t supposed to use unauthorized channels to exchange information with one another or clients. And sure, many legitimate privacy concerns are in play, too. Who wants nude selfies, bro talk at the bar or confidential client information in the hands of regulators?

But the real potential disaster for Wall Street is if this is the leading edge of an aggressive insider-trading investigation. Bloomberg News reported that the probe has already targeted “100 personal mobile phones carried by top traders and dealmakers.” The SEC has also sent firms lists of dozens of key roles — including those overseeing investment banking teams and trading desks — that are subject to its review.

Who knows what might turn up? Wall Street has been rocked by insider-trading scandals over the years, and this may — or may not — lead to headlines. While reforms have followed the most damaging investigations, such as the Drexel Burnham Lambert meltdown decades ago, some of those swept up in insider-trading probes have managed to rebound. Just ask Michael Milken.

Still, the consequences can be severe. Milken went to prison. Mathew Martoma, a trader at SAC Capital Advisors, was found guilty in 2014 of insider trading that generated $276 million in profits for his employer in just one year. He received a nine-year prison sentence.

The odds are usually in Wall Street’s favor most of the time, however. It has deeper pockets and resources than the SEC and can usually outgun or outrun regulators. And because so much lucre is to be had, and because each new generation of traders has to learn the lessons of its forebears, misbehavior and crimes are almost guaranteed. The SEC truly functions only as a stopgap, not a cure. But as Elon Musk continues to chew through regulations and the law — while ignoring his contractual obligations — in his pursuit of Twitter Inc., it’s worth remembering that laws and institutions matter.

Banks including Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., HSBC Holdings Plc and Morgan Stanley have reportedly been responding to the SEC’s requests for devices and information as part of its WhatsApp investigation. None of them have been accused of wrongdoing. They must be aware though that, at a minimum, hefty fines might be heading their way. Regulators fined JPMorgan Chase & Co. $200 million in December after it found that the bank’s leadership had ignored communication regulations from 2015 to 2020 by allowing its employees to handle company business on WhatsApp and personal email accounts.

In the JPMorgan case, about 21,000 business messages transited personal communication channels over one period of about two years. One manager alone sent 2,400 texts to colleagues, outsiders and clients in one year. Does that mean something nefarious was afoot? Not necessarily. Was that kind of stuff hard to avoid during Covid-19 lockdowns? Sure. Did it make sense to do it anyway? No.

The SEC “Pries Into Over 100 Trader and Bankers Phones” is how a Bloomberg News headline described the WhatsApp investigation. But this isn’t “prying.” It’s the SEC doing its job because Wall Street isn’t. Brokerages and banks have long-standing obligations to comply with extensive and well-defined rules about storing and preserving employee communications. Those rules have been regularly updated for the digital era and apply to emails, texts and group chats.

Businesses have to observe many absurd regulations and requirements, and even the ones that make sense can be onerous. But the reasons the SEC regulations around communication exist aren’t complex. They help stop cheating. They protect investors, companies and confidences. They stave off scandal and preserve reputations. They make sense.

It would be easier on everyone involved if Wall Street just followed the rules and didn’t do stupid things. I mean, how much money do you really need?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Timothy L. O’Brien is a senior columnist for Bloomberg Opinion covering U.S. business and politics. A former editor and reporter for the New York Times, he is author of “TrumpNation: The Art of Being the Donald.”

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