In recent months, regulators penalized firms for failing to monitor for compliance with their social media policies. Also, regulators fined brokers for using personal email accounts to send business-related communication to customers. Failure to meet FINRA and SEC retention requirements results in serious consequences for firms and brokers, including fines and other disciplinary actions.

The SEC fined a broker-dealer firm $700,000, and the Chief Executive Officer (CEO) was barred from association with any FINRA member in any principal or supervisory capacity and fined $100,000.

FINRA also found that the firm failed to establish and maintain a reasonable supervisory system for the review of electronic correspondence. The firm’s written supervisory procedures (WSPs) did not address how supervisors were to select electronic correspondence for review, how they were to review it, the frequency of such reviews and the manner in which to document reviews, nor did the firm maintain records of its supervisory review of electronic correspondence. In addition, FINRA found that the firm failed to establish and maintain a reasonable system of supervisory controls. The sanctions were also based on findings that the firm and the CEO used unbalanced and misleading communications with the public. The findings stated that the CEO used his firm email address to send emails concerning a biotechnology company he co-founded to persons identified as being involved with, or having invested in, biotechnology companies.

The firm and CEO collectively owned more than 60 percent of the company’s common stock. The emails did not provide a sound basis for evaluating the claims made therein, contained false or misleading claims, were not fair and balanced, included baseless performance predictions and misleading forecasts, and did not disclose the name of the firm and its relationship with the company. In these emails, the domain name of the CEO’s email address was the only indication of his association with the firm. The emails did not disclose the firm and the CEO’s ownership interest in the company or that the firm had raised approximately $13 million in capital for the company and earned more than $1 million in compensation since the company’s inception. The findings also found that the firm failed to report to FINRA statistical and summary information regarding written customer complaints it received, and reported statistical and summary information for other written complaints it received more than a year late.

FINRA fined a brokerage firm $90,000 for failing to establish, maintain and enforce a reasonable supervisory system, including WSPs, for the review of email and hard copy customer correspondence. Because the firm did not conduct correspondence review close in time to receipt, any sales practice concerns or red flags raised through such correspondence could go undetected for long periods of time. FINRA found that contrary to its WSPs, the firm failed to conduct a weekly review of representatives’ social media sites that the representatives disclosed to the firm 22 times out of a sample of 26 weeks reviewed. In addition, because the firm did not have a reasonable system to monitor for compliance with its social media policies, representatives were able to maintain business-related pages on a social media site that had not been preapproved by a qualified registered principal. As a result of the firm not reasonably monitoring for usage of undisclosed websites, it failed to preapprove websites operated by representatives as required by its WSPs.

INDIVIDUALS:
A broker was fined $5,000 for causing his member firm to fail to preserve books and records. The findings stated that the broker and his assistant, who acted at his authorization, utilized unapproved email addresses to send and receive business related communications. The email addresses were not disclosed to the broker’s member firm, and the emails sent and received were not captured by the firm.

A broker was fined $7,500 and consented to the sanctions, and to the entry of findings, that in anticipation of leaving his member firm he improperly removed nonpublic personal customer information from the firm, without the firm or the customers’ knowledge or consent. The findings stated that the broker sent emails containing customers’ nonpublic personal information, including social security numbers, account numbers and account details from his firm email account to his personal email account. In addition, the broker downloaded customers’ nonpublic information from a firm computer to a portable hard drive and removed the information from the firm. As a result, the broker caused his firm to violate the SEC’s Regulation S-P: Privacy of Consumer Financial Information and Safeguarding Personal Information.

A broker was fined $5,000 for causing his member firm to fail to retain and review emails concerning business-related matters among its books and records by using a personal email address to communicate with securities customers. The findings stated that the broker used the personal email account even though the firm’s written procedures required him to use its email system when sending or receiving business related emails. The broker also signed annual attestations stating that he was aware of, and abided by, the firm’s policies and procedures, including specifically its policies governing email communications. Furthermore, the broker used the personal email address to send correspondence to customers that required firm compliance review and pre-approval, and thereby circumvented its compliance procedures.

A broker was fined $10,000 because he omitted material information from an email communication to a customer regarding the status of funds held in escrow, in connection with the customer’s investment in a private placement of notes for which the broker’s member firm had been the placement agent. The findings stated that the broker told the representative of the customer that the investment had been in a film production escrow account since the beginning of the investment, because the film production company had not completed its financing or obtained the completion bond. The broker further stated that a tax credit lender was working with the film production company to obtain the funds from the escrow agent in order to pay the remaining principal of the notes as soon as possible. Though the broker had obtained information from a bank teller that the escrow account had been closed at the financial institution, he omitted that information from the email to the representative of the customer. The broker caused his email communication with the customer to be misleading by failing to disclose all the information regarding the escrow.