The $7.5 million fine against
LPL Financial LLC for e-mail violations is noteworthy for its size — it's the largest ever brought by Finra for e-mail violations — but a review by InvestmentNews shows that it is just the latest in a stepped-up enforcement effort in this area.
This month, Next Financial Group Inc. agreed to pay the
Financial Industry Regulatory Authority Inc. a $250,000 fine to settle an e-mail case involving two representatives whose private-business-related e-mails had not been captured by the firm.
Securities America Inc. consented to a $100,000 fine in April over a failure to catch e-mails sent by three brokers that contained alleged misrepresentations about private placements.
And in February, Finra and five broker-dealers owned by ING Groep NV settled an e-mail case for $1.2 million. Finra claimed the firms failed to retain and review millions of e-mails for periods ranging from two months to more than six years.
In the LPL settlement, which was announced Tuesday, Finra claimed LPL had 35 significant e-mail system failures that prevented access to hundreds of millions of e-mails. Finra also said the firm made material misstatements during its investigation.
A review of cases by InvestmentNews shows that Finra is hot on the e-mail trail. Not counting the LPL case, the review uncovered nine settlements with broker-dealers year-to-date through Tuesday, for a total of $1.65 million in fines. E-mail violations either were the only ones cited, or appeared to make up a major part of these cases.
In 2012, Finra settled 18 such cases for a total of $1.24 million.
Finra often combines various charges in one case, so separating them in unique e-mail cases is somewhat subjective.
A separate study by the Sutherland Asbill & Brennan LLP law firm found a sharp increase in e-mail-related violations last year. The law firm said Finra fines shot up to $6.5 million in 2012, an increase of 81% from the prior year. It counted 63 cases concerning electronic communications in 2012, up from 57 cases in 2011.
Sutherland included all cases where e-mail violations were part of the case, regardless of how minor.
“E-mail retention and review are always front and center for Finra,” Daniel Nathan, a partner at Morrison & Foerster LLP, wrote in an e-mail.
Finra is especially concerned when failure to retain e-mails might have prejudiced regulators or arbitration claimants, he added.
