The Financial Industry Regulatory Authority (FINRA) recently fined brokerage firm Commonwealth Financial Network (CFN) $250,000 on allegations that from December 7, 2009 to January 28, 2012, CFN’s supervisory system: (a) failed to subject about 12.6 million outgoing e-mails to daily e-mail surveillance protocol, constituting 90% of the e-mails that the firm’s registered representatives sent through doing business as (DBA) e-mail accounts; and (b) failed to survey approximately 474,380 registered representatives e-mails. FINRA also found that the firm failed to establish and maintain procedures to test its e-mail supervisory system to timely identify systemic failures.
CFN has been a member of FINRA since 1979 and the firm has approximately 4,550 associated persons operating from 1,154 branch offices. CFN’s primary office is located in Waltham, Massachusetts. CFN’s registered representatives are independent contractors and many of them operate from branch offices under one or more DBA names. Most of CFN’s brokers use non-CFN e-mail domains names.
During the period from December 2009, to January 2012, CFN used a system to archive, preserve, and supervise business related e-mails of its associated persons. FINRA found that e-mails sent through DBA email domains were automatically transmitted to CFN’s system for retention and review. CFN’s supervisory procedures required the firm’s emails to be transmitted through CFN’s server so that the firm could capture and review its brokers’ emails. CFN’s supervisory system required a daily review of its registered representatives’ e-mails including lexicon searches and a random sampling of emails.
CFN updated the software that transmits the brokers’ e-mails to the firm’s e-mail retention server. However, FINRA found that the software upgrade was not compatible with the computerized tool that CFN uses to conduct daily reviews and the firm failed to test its e-mail supervisory system during its software update and consequently did not identify that the surveillance tool was not working properly.
FINRA found that until CFN fixed its supervisory system in January 2012, CFN’s brokers transmitted approximately 17 million e-mails and about 14 million of those outgoing e-mails were sent through DBA e-mail domains. During that period, FINRA alleged that CFN failed to subject approximately 12.6 million of those outgoing e-mails to surveillance protocols representing about 90 percent of the outgoing e-mails transmitted through DBA e-mail domains.
FINRA also found that in May 2011, an employee of the firm’s information technology department observed that the failings of surveillance tool. However, FINRA found that CFN did not take steps to ensure that all of the firm’s registered representatives outgoing DBA e-mails were properly monitored. In fact, FINRA determined that the IT department failed to notify the CFN’s legal and compliance departments.
Email monitoring is an essential part of proper supervision of broker activities. The attorneys at Gana LLP are experienced in representing investors to recover their financial losses. Our consultations are free of charge and the firm is only compensated if you recover.