6/10/2010

FINRA Fines Brokerage Firm Piper Jaffray $700,000 for Email Retention Violations

In May 2010, the Financial Industry Regulatory Authority (FINRA) announced that it fined brokerage firm Piper Jaffray & Co. $700,000 failing 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 prevented the Piper Jaffray from fully complying with FINRA's requests for emails. Piper Jaffray's record-keeping failures also may have affected the brokerage firm's ability to meet its obligations to produce emails in securities arbitration proceedings brought by investors.

The Acting Director of Enforcement for FINRA has stated that Piper Jaffray's failure to maintain all emails could result Piper Jaffray failing to produce "crucial evidence of improper conduct by the firm and its employees." This issue should be of great concern to investors who may have arbitration claims against Piper Jaffray. Emails that may reflect wrongdoing on the part of Piper Jaffray or its employees may not be available to help the investors prove their cases against Piper Jaffray. This could place investors at a distinct and unfair disadvantage.

Piper Jaffray previously had been sanctioned by the SEC, the NASD k/n/a FINRA, and the NYSE for email retention failures in November 2002. 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. In March 2003, Piper Jaffray certified to regulators that it had enacted such procedural and system updates. It now appears that Piper Jaffray either never made those updates or that the updates were insufficient to effectuate proper email retention.

The failure of a Wall Street brokerage firm to retain emails is not unique to Piper Jaffray. In 2006, the SEC fined Morgan Stanley $15 million for failing to preserve emails.

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