[ by Howard Haykin ] A Bellevue, WA-based broker-dealer agreed to settle FINRA charges that it committed a series of violations relating to its handling of electronic correspondence.  The firm, Century Pacific Securities, a FINRA member since December 2001, currently has 2 RRs, operates a single branch office, and engages in a general securities business.

FINRA Findings and Allegations. From about 8/12/08 2008, until about 9/24/09, Century Pacific allegedly maintained certain records in electronic formats, but did not notify FINRA prior to employing electronic storage media, as required by SEC Rule 17a-4(f)(2)(i).  FINRA further noted that CPS allegedly:

• from about 8/12/08 until about 1/10/10, failed to preserve e-mail correspondence in a non-rewriteable, non-erasable format as required by SEC Rule 17a-4(f)(2)(ii)(A);
• from 8/12/08-1/10/10, failed to store separately from the original a duplicate copy of its electronic records; and,
• failed to implement its WSPs re: the retention and review of electronic correspondence.

From 8/12/08 until about 11/30/09, the firm did not follow its WSP's that required all incoming business-related electronic correspondence, and some outgoing correspondence be printed and forwarded to its president for review - this was not done. On or about 11/30/09, CPS revised its WSPs, so that they now required that each of its principals review the others’ electronic mail weekly via disk and that the review be documented.  The revised procedures also required that the principals conduct periodic tests to determine that all e-mail had been submitted via disk and each review be documented. Yet, contrary to preserving its email on disks, the firm printed most of its e-mail - although not all business-related e-mail and attachments were printed.  Further, the firm did not maintain evidence of each principal’s review of the others’ electronic mail or of tests conducted to determine that all e-mail had been submitted for review. All told, the CPS's supervisory system and/or its WSPs were not reasonably designed to ensure that it retained all electronic communications relating to its business, and that a principal reviewed its electronic communications with the public.

[C-I Note: Two things come to mind:

(i) Small firms do not catch any breaks when it comes to complying with rules pertaining to communications with the public.  The only break CPS got was a reduction in its fine because of its fair to poor financial condition.

(ii) Every control and supervisory procedure in the WSPs must be performed and evidenced.  Likewise, every control and supervisory procedure conducted by firm personnel must be reflected in the WSP.  Before you complain that 2nd element is overreaching, keep in mind that, should someone conduct procedures that are not called for in the WSPs, and one day either is out sick, on vacation, or has left the firm permanently, the next person who is delegated responsibilities will have little or no way of knowing those additional steps taken.]

FINRA Sanctions. Century Pacific agreed to pay a $10K fine.  FINRA imposed a lower fine that it had intended, after taking into consideration, among other things, the firm’s limited revenues and financial resources. For further details, go to:   [FINRA Disciplinary Actions for July 2012] and    [FINRA AWC #2010020811601].