| catching the Bull by the horns (AFP)
New York, Dec. 4: Regulators fined five of the largest brokerage firms in the US on Tuesday for failing to preserve internal e-mail communications as required under securities laws.
The Securities and Exchange Commission, NASD and the New York Stock Exchange announced joint actions against Deutsche Bank Securities, Goldman Sachs, Morgan Stanley, Salomon Smith Barney and US Bancorp Piper Jaffray, fining the firms $ 1.65 million each and requiring them to review their procedures to ensure their future record-keeping practices comply with regulations.
All of the firms settled the actions without admitting or denying the accusations. The fines, which total $ 8.25 million, are the largest ever in a record-keeping case, regulators said.
“The message here to our member firms is the form of the communications doesn’t matter, it’s the substance,” said Barry Goldsmith, executive vice-president for enforcement at NASD, “and that the rules requiring broker dealers to keep those records apply to e-mails and will be enforced”.
Securities laws require that brokerage firms preserve electronic communications related to the business of the firm for three years. Such messages must be kept in an accessible place for two years.
But during the investigations into analyst practices on Wall Street and the firms’ allocation of the most popular new stock offerings to favoured clients, securities regulators began to see how haphazard the retention of e-mail messages was at some brokerage firms.
For example, regulators found that some firms discarded, recycled or wrote over the e-mail tapes that should have been kept, sometimes after less than a year. While some firms relied on their employees to preserve copies of their e-mail messages on their own personal computer hard drives, there were no systems in place to ensure the e-mails were maintained. In some cases, the hard drives of computers used to preserve e-mails were erased when an employee left a firm.
In recent years, securities firms have argued to regulators that retaining e-mail is too onerous and that it was unclear which messages had to be kept. The firms have also been lobbying Congress to exempt e-mail from the records that must be maintained under securities laws. But the SEC reaffirmed its position in November 2001 that e-mail messages are among the documents that must be preserved by firms.
Stuart Kaswell, general counsel of the Securities Industry Association, said in a statement Tuesday: “We hope this settlement paves the way for a final resolution to the record-keeping challenges that are currently confronting the industry. These challenges include clarifying the vague “business as such” standard applicable to communications so as to more precisely define which internal e-mail communications a firm must retain”.
But several regulators rejected any notion that the law was imprecise. Besides, said Linda C. Thomsen, deputy director of enforcement at the SEC: “Everyone is free to try and change the existing law but until it is changed you are obliged to comply with it.”
One person involved in the investigation said: “What was disturbing here was not that someone made a good-faith determination of a rule and was maybe wrong in how they interpreted it.