Firm Failed to Disclose that Email Retention Deficiencies Impacted its Ability to Respond Fully in FINRA Investigations
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Piper Jaffray & Co. $700,000 for violations related to its failure to retain approximately 4.3 million emails from November 2002 through December 2008. Piper Jaffray also failed to inform FINRA of its email retention and retrieval issues, which impacted the firm's ability to comply completely with email extraction requests from FINRA. It also may have affected the firm's ability to respond fully to email requests from other regulators or from parties in civil litigation or arbitrations.
"Email retention is a critical regulatory requirement with which broker-dealers must comply," said James S. Shorris, FINRA Executive Vice President and Acting Director of Enforcement. "Piper Jaffray failed to disclose that it was not making complete production of its emails due to intermittent problems with its systems – potentially preventing production of crucial evidence of improper conduct by the firm and its employees."
Piper Jaffray had previously been sanctioned for email retention failures in November 2002, in a joint action by the Securities and Exchange Commission, New York Stock Exchange Regulation and NASD arising from investigations of the firm's conflicts of interest between its investment banking and research departments. As part of that settlement, Piper Jaffray was required to review its systems and certify that it had established systems and procedures designed to preserve electronic mail communications. The firm made that certification to regulators in March 2003. At no time did the firm alert regulators that its system was experiencing problems.
FINRA discovered Piper Jaffray's continuing email retention deficiencies when its investigators requested all emails sent or received by a former firm employee suspected of misconduct. The firm provided a CD-ROM purportedly containing all of the employee's emails, on both his firm and Bloomberg email accounts. When reviewing the CD-ROM's contents, however, FINRA discovered that one particular email was not produced that investigators had already obtained in hard copy form – an email 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. Only after further inquiries about that missing email did the firm finally inform FINRA of the intermittent email retention and retrieval issues it had been experiencing firmwide since the November 2002 action.
In settling this matter, Piper Jaffray neither admitted nor denied the charges, but consented to the entry of FINRA's findings.
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