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Regulatory Sanctions

WWW: B/D's Still Committing Common Email Violations - FINRA

April 6, 2017
Firms are running out of valid excuses for not complying with industry rules and standards when it comes to transmitting, reviewing and storing electronic communications. Today's case illustrates what happens when a firm tries to 'score on an inside-the-park homer' but fails to touch all the bases along the way.  


First Midstate, an investment banking firm based in Bloomington, IL, agreed to pay $12.5K to settle FINRA charges related to business-related email communications in the required format.


ABOUT THE FIRM.   First Midstate, a FINRA member since 1963 and a municipal securities dealer, has 5 registered reps. According to its web-site, the firm promotes its 50-plus years experience in the formulation, voting and marketing of Illinois muni bonds. First Midstate does not have relevant formal disciplinary history.


FINRA’S SPECIFIC FINDINGS.    Between 9/12/11 and 10/31/15, First Midstate allegedly committed the following violative actions: (i) failed to maintain business-related email communications in the format required by SEC Rule 17a-4; and, (ii) failed to review its RR’s email communications sent via mobile phones.


Prior to its retention of a 3rd-party electronic storage media provider in 2015, First Midstate stored its business-related e-correspondence on the Firm's email server, which had off-site duplicate retention. However, the server (and thus the communications stored on it):


  • was not readily accessible,
  • did not maintain images and organize indices available for easily readable projection, production, and enlargement;
  • was not subject to an audit system;
  • did not preserve emails exclusively in a non-rewriteable, non-erasable format;
  • did not automatically verify the quality and accuracy of the storage media recording process.


Additionally, the firm was using a computer application to review e-communications that didn't capture email communications sent by registered reps from handheld devices while out of the office. OOPS!


This case was reported in FINRA Disciplinary Actions for March 2017.

For details on this case, go to … FINRA Disciplinary Actions Online, and refer to Case #2013039239102.