More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
The Financial Industry Regulatory Authority (FINRA) recently fined Piper Jaffray & Co. $700,000 for violations related to its failure to retain approximately 4.3 million e-mail messages from November 2002 through December 2008. FINRA also says in its compliant that Piper Jaffray "failed to inform FINRA of its e-mail retention and retrieval issues, which impacted the firm's ability to comply completely with e-mail extraction requests from FINRA. It also may have affected the firm's ability to respond fully to e-mail requests from other regulators or from parties in civil litigation or arbitrations."
In settling this matter, FINRA says that Piper Jaffray neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
"E-mail retention is a critical regulatory requirement with which broker/dealers must comply," said James Shorris, FINRA executive VP and acting director of enforcement, in a statement. "Piper Jaffray failed to disclose that it was not making complete production of its e-mails due to intermittent problems with its systems--potentially preventing production of crucial evidence of improper conduct by the firm and its employees."
FINRA says that it discovered Piper Jaffray's continuing e-mail retention deficiencies when its investigators requested all e-mail messages sent or received by a former firm employee suspected of misconduct.
"The firm provided a CD-ROM purportedly containing all of the employee's e-mail messages, on both his firm and Bloomberg e-mail accounts. When reviewing the CD-ROM's contents, however, FINRA discovered that one particular e-mail message was not produced that investigators had already obtained in hard copy form-an e-mail whose contents sparked an internal investigation that led to the employee's termination, and formed the basis for a FINRA enforcement action against the employee," FINRA says. "Only after further inquiries about that missing e-mail did the firm finally inform FINRA of the intermittent e-mail retention and retrieval issues it had been experiencing firm wide since the November 2002 action.