One might think that a firm that's been registered since 1990 would know by now how to maintain and preserve its email correspondence.  But on those occasions when exceptions happen, what matters is damage control and prompt resolution. McManus & Miles Incorporated, a New York-based broker-dealer, recently had such a 'mind bending' experience.  M&M is a small firm that employs 5 persons, 4 of whom are registered with FINRA.  Its activities include, and have included, the private placements of securities and the sales of companies involving the purchase of stock. FINRA Findings and Allegations. FINRA charged M&M with failing to preserve for at least three years all email pertaining to its securities business, and levied a $17.5K fine.   FINRA notes the relevant period as 5/26/06 through 5/26/09. It was during this time frame that the firm failed to preserve and store email, in that: (i) the Firm used electronic storage media to store emails which did not preserve emails exclusively in a non-rewriteable, non-erasable format;  (ii) employees could delete emails relating to the Firm's securities business, in which case the emails were not preserved;  and, (iii) due to the Firm's flawed storage recording process, emails for 7 associated persons for various time periods during that 3-year time frame, were lost or not readily recoverable and accessible. During the Relevant Period, the Firm also failed to adequately test its storage recording process, and to designate a 3rd party with access to, and the ability to download, information from the Firm's electronic storage media to another acceptable medium to allow FINRA access to the information. Rotation, Reuse, Overwrite. M&M's used an on-site computer server and magnetic storage tapes to store email communications that were required to be retained.  The firm's first error was the fact that the electronic storage media was not in a non-rewriteable, non-erasable format.  The second error - which resulted in the worst possible scenario - was that the tapes used to back-up the firm’s emails on the firm’s onsite computer server were rotated, reused and overwritten after a 5-week period. Storage Media Lacked Automatic Verification. Individual email users had the ability to delete emails relating to the firm’s securities business on the day they were sent or received, in which event, the emails were not preserved.  The storage media the firm utilized did not automatically verify the quality and accuracy of the storage media recording process.  Furthermore, M&M did not organize and index all email information maintained, nor did it not have an index available for examination. FINRA also found that the firm didn't have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved - and thus there were no audit results available for examination. The firm also never engaged a single 3rd-party that would have access to, and the ability to, download information from the firm’s electronic storage media to another acceptable medium so as to allow FINRA access to information contained on the firm’s storage system - and to provide an off-site back-up location (that would enable recovery in the event of a "disaster"). Repeated Malfunctions. FINRA found that M&M's computer server malfunctioned repeatedly, disrupting the back-up storage process - of which the firm was aware. The firm’s problematic computer server experienced a critical malfunction, interrupting the firm’s access to emails.  When the firm tried to recover data from its back-up tapes, it found that various back-up tapes contained no data or corrupted data and that many emails were altered or not preserved. During its review of the firm’s securities activities, FINRA found that the firm reported that emails for some associated persons for various periods had been lost or were not readily recoverable.  The firm’s inability to produce all emails as FINRA staff requested hampered the staff’s examination of the firm’s activities and practices.  It goes with saying that these failures and deficiencies meant that M&M had failed to establish, maintain and enforce a supervisory system and WSPs reasonably designed to ensure that email communications relating to the firm’s broker-dealer business were preserved, as required by SEC Rule 17a-4(b)(4), and that the firm had complied with applicable requirements under SEC Rule 17a-4(f) when it used electronic storage media to store emails. FINRA further found that the M&M's WSPs were deficient - e.g., the procedures provided, in pertinent part, that email communications should be forwarded to a registered principal and then forwarded to an electronic retention file for storage by transaction and retained for not fewer than three years, the first 2 on the premises of the firm. In this regard, FINRA found that the firm did not have a supervisory system or procedures to, among other things:  (i) ensure that emails were preserved exclusively in a non-rewriteable, non-erasable format;  (ii) ensure that employees did not delete email communications relating to its broker-dealer business;  (iii) test the firm’s storage recording process; and, (iv) designate a third party with access to, and the ability to, download information from the firm’s storage media to another acceptable medium. For further details, go to:  [FINRA AWC #2009016343701].   [Disciplinary Actions Reported for February 2012].