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NEWSLETTERS & ALERTS
Nationwide Affiliates Lose 547,000 Emails, But Fined Only $65K
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by Howard Haykin
Nationwide Fund Distributors and Nationwide Investment Services Corporation agreed to pay a single fine of $65K to settle FINRA charges that 2 out of the firms’ 87 email servers were not properly reloaded with an email retention and supervision program after a standard server refresh.
In determining appropriate sanctions, FINRA considered that Respondents self-identified the issue, fully investigated the causes of the retention failure, and self-reported to FINRA, including providing specific details of its investigation. Respondents corrected the technological deficiencies and implemented significant changes to policies, processes and procedures concerning the review and archiving of emails.
BACKGROUND. Nationwide Investment Services Corporation (“NISC”), a FINRA member since 1976, has its principal place of business in Columbus, OH. NISC employs approximately 2,131 registered reps and has 61 branch offices. The firm is a distributor of variable annuities and variable life products for affiliates Nationwide Life Insurance Company and Nationwide Life and Annuity Insurance Company.
Nationwide Fund Distributors (“NFD”) is primarily an institutional brokerage with 69 registered reps and one office in Columbus, Ohio.
Neither firm has any relevant disciplinary history.
FINRA FINDINGS. NISC and NFD share email servers and an email monitoring and retention system. In July of 2013, during a routine update and test, 2 of the 87 servers used by the firms were not reloaded with the retention and monitoring system. As a result, emails routed through those 2 servers were not properly retained over a 9-month period.
Upon discovery, NISC identified the extent of the issue and took steps to recover emails potentially lost. Despite these efforts, approximately 547,000 emails were lost due to the error between July of 201 3 and April of 2014. The emails of 359 reps from NISC and 9 reps from NFD were impacted.
By reason of the foregoing, the firms violated Securities Exchange Act Rule 17a-4, and FINRA Rules 4511 and 2010.
SEC Rule 17a-4(b)(4) … requires each member, broker or dealer to “preserve for a period of not less than 3 years, the first 2 years in an accessible place.... [o]riginals of all communications received and copies of all communications sent (and any approvals thereof) by the member, broker or dealer (including interoffice memoranda and communications) relating to its business as such..." Internal electronic mail communications relating to a B/D’s business fall within the purview of Rule 17a-4. Since 1997, Rule 17a-4 has required that if a firm uses electronic storage media, it must, among other things, preserve the records exclusively in a non-rewriteable, non-erasable format.
FINRA Rule 4511 … provides, in part, that each member "shall make and preserve books and records as required under the FINRA rules, the Exchange Act and the applicable Exchange Act rules" ... and all "books and records required to be made pursuant to the FINRA rules shall be preserved in a format and media that complies with" Rule 17a-4.
This case was reported in FINRA Disciplinary Actions for June 2017.
For details on this case, go to ... FINRA Disciplinary Actions Online, and refer to Case #2014041901001.