FINRA Fines Stephens Inc. $900,000 for Inadequate Supervision of Research Department "Flash" Emails
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has censured Stephens Inc., of Little Rock, Arkansas, and fined the firm $900,000 for inadequately supervising firm-wide internal "flash" emails sent by its research analysts to convey information about companies and industries the firm covered. These failures created the risk that the flash emails could potentially include material nonpublic information that might be misused by sales and trading personnel. Stephens will also cease distributing flash emails and will implement a plan to conduct a comprehensive review of its policies, procedures and training in the research area.
Stephens' firm-wide flash email program was designed as an expeditious way for research analysts to share publicly available news and insights regarding covered companies with its sales and trading personnel for discussion with firm customers interested in those companies. FINRA found that from at least August 2013 through January 2016, Stephens did not adequately supervise the content and dissemination of the flash emails, and that the firm failed to establish, maintain, and enforce adequate written supervisory procedures concerning trading in connection with these flash emails. In addition, FINRA found instances of firm personnel forwarding flash emails marked "internal use only" to customers, or cutting and pasting the text of an internal-use email into a separate communication sent to a customer. In at least one instance, FINRA also found that content from an unapproved, draft research report was cut and pasted into a flash email. Although these practices were contrary to firm policy, FINRA found that the firm lacked effective monitoring or supervisory systems to detect or prevent them.
Brad Bennett, FINRA's Executive Vice President and Chief of Enforcement, said, "The supervision of internal communications by research analysts to the sales force requires extreme vigilance given the possibility of revealing material nonpublic information in advance of published research. Today's action reminds those firms that permit such communications of the need to supervise and monitor them, and to ensure that their controls protect against trading based on the information."
In settling this matter, Stephens neither admitted nor denied the charges, but consented to entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2015, members of the public used this service to conduct 71 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database. Investors can also call FINRA's Securities Helpline for Seniors at (844) 57-HELPS for assistance or to raise concerns about issues they have with their brokerage accounts and investments.
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