Friday, May 14, 2021

SEC Slaps Wall Street Over E-mail

Five Wall Street broker-dealers have been slapped with fines totaling $8.25
million for lax record-keeping concerning e-mail communications, the
Securities and Exchange Commission (SEC) said on Tuesday.

The five brokerage powerhouses — Goldman Sachs ,
Citigroup-owned Salomon Smith Barney , Deutsche Bank Securities and U.S. Bancorp Piper Jaffray —
agreed to each pay $1.65 million.

The firms also agreed to immediately review internal procedures for
preserving e-mail communications, in compliance with record-keeping statutes
are rules. None of the firms admitted or denied wrongdoing.

The joint action against the Wall Street firms were levied by the SEC, the
New York Stock Exchange and NASD.

“Each firm had inadequate procedures and systems to retain and make
accessible e-mail communications. While some firms relied on employees to
preserve copies of the e-mail communications on the hard drives of their
individual personal computers, there were no systems or procedures to ensure
that employees did so,” the SEC said.

It said the firms’ failure to preserve e-mails and/or to maintain them in an
accessible place was discovered during investigations being conducted
jointly and separately by the SEC, NYSE and NASD.

“Some firms backed up e-mail communications on tape or other media that was
represented as part of a process designed as a disaster-recovery or
business-continuity measure, or for another business purpose. However, these
firms discarded or recycled and overwrote their back-up tapes and other
media, often a year or less after back-up occurred,” the regulators added.

In those instances in which the firms did retain e-mails, the SEC said those
communications were often stored in an unorganized fashion on back-up tapes,
other media, or on the hard drives of computers used by individual
employees. “In some instances, hard drives of computers preserving
electronic mail communications were erased when individuals left the
employment of the firm,” it added.

SEC regulations require securities firms to keep all business records,
including e-mails, for three years. However, Wall Street and the SEC have
sparred over what exactly is required in e-mail retention policies.

E-mail record-keeping played a prominent role in New York Attorney General
Elliot Spitzer’s investigation of Merrill Lynch for conflicts of interest.
Spitzer eventually wrung a $100 million settlement from Merrill, after
exceedingly candid and embarrassing e-mails from its analysts were used by
Spitzer to put the company on the defensive.

At the time, Spitzer displayed e-mail from Merrill’s former star analyst
Henry Blodget calling InfoSpace, whose stock he rated favorably, “a piece of
junk.”

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