FINRA fines Benjamin Edwards $750k over text message failures

The Financial Industry Regulatory Authority has censured and fined Benjamin F. Edwards & Co. $750,000 for long-running failures to supervise, retain, and produce business-related text messages, including in a recruiting dispute that went to FINRA arbitration.

The St. Louis-based hybrid RIA and broker-dealer agreed to the sanctions in a letter of acceptance, waiver and consent signed Jan. 15 and accepted by FINRA on Jan. 30.

The case adds to regulators' long-running history of slapping penalties on member firms over findings of recordkeeping shortfalls, including last year's $850,000 FINRA penalty against Ally Invest and the Securities and Exchange Commission's $393 million collective fine covering roughly two dozen firms in 2024.

The regulator said that “between at least October 2019 and December 2023, Benjamin Edwards failed to reasonably supervise its employees’ use of text messaging and failed to preserve and review business-related text messages of registered representatives.”

During that period, the firm’s written supervisory procedures generally banned business texting outside of firm-approved software that could capture and store messages, but FINRA found the supervision program around that policy was not reasonably designed.

According to the letter, the firm had “no process or procedures, written or otherwise, for monitoring for compliance with its text messaging policies.” Despite the prohibition, at least five registered representatives, including one senior executive, used personal devices and unapproved messaging apps to communicate about the firm’s business.

Those texts were not captured at the time. FINRA said that during the period at issue, those representatives “sent and received at least 3,560 text messages” that involved firm business, including customer investment directives, sensitive personal information, and investment advice. Some of those messages were later recovered during the regulator’s investigation, but a large proportion of the communications were not preserved as required under federal securities law and FINRA recordkeeping rules.

The regulator concluded that the firm violated Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, and FINRA Rules 4511, 3110 and 2010. FINRA highlighted that the supervisory duty under Rule 3110 includes investigating and acting on red flags suggesting potential misconduct.

One key red flag identified in the AWC letter was a 2017 industry arbitration brought by another member firm related to Benjamin Edwards’ recruitment of four of its advisors. In that case, the arbitration panel ordered the firm in October 2018 to produce electronic communications, including business-related text messages, dating back to before September 2016.

The panel imposed sanctions in May 2019 after the firm did not fully comply, and issued a second sanctions order in October 2019 when depositions revealed additional responsive texts that had not been produced.

FINRA noted that the firm has since tried to shore up its controls. In May 2023, Benjamin Edwards hired a consultant to review its text message supervision. By December 2023, the firm had strengthened its written supervisory procedures, required regular certifications on its texting policies, increased training and communication, and enhanced its electronic communications monitoring systems.

Under the settlement, the firm is censured and must pay the $750,000 fine.

A request for comment sent to a representative for Benjamin F. Edwards was not answered immediately.

Recordkeeping rules have been an industry pain point for years, with at least one association arguing that an overhaul of the SEC's requirements is long past due.

Among other requests raised in an October letter addressed to SEC Chairman Paul Atkins, SIFMA called on the regulator to "narrow the retention obligation" for communications given how current rules, drafted when firms relied primarily on paper-based communications, have not kept up with advances in digital technology.