The Securities Lawyer Blog recently noted a tech wreck in the industry when penalties were imposed on Scottrade for its failure to establish and implement an adequate automated anti-money laundering (AML) program to detect and trigger reporting of suspicious transactions.
Now the Financial Industry Regulatory Authority (FINRA) has imposed a large fine on MetLife Securities, Inc., and three of its affiliates New England Securities Corp., Walnut Street Securities, Inc. and Tower Square Securities, Inc. for a different sort of digital-age supervisorial problem.
The fine is based on the firm's alleged failure to establish: (1) an adequate supervisory system for both the review of brokers' email correspondence with the public; and, (2) procedures relating to broker participation in outside business activities and private securities transactions.
The impact of these alleged failures was to allow two MetLife Securities brokers to avoid detection by the firm of their undisclosed outside business activities and private securities transactions. This is alleged to have cost some firm clients millions of dollars.
The firm did some things right. For nearly a decade, there were written supervisory procedures mandating that all securities-related broker emails be reviewed by a supervisor. But the program fell short in that supervisors were not able to directly monitor broker emails. Instead, it fell on the brokers to forward relevant emails to supervisors for review.
Managers were able to spot-check broker computers for emails that had not been forwarded. Brokers could get around this by deleting emails they did not want supervisors to find. Even regular audits were alleged to be ineffective in that did not allow for timely detection of email-forwarding failures.
FINRA found a large cache of emails involving two brokers who were able to engage in outside business activities and private securities transactions without the firm's knowledge because these emails were not forwarded to supervisors.
According to Susan L. Merrill, FINRA Executive Vice President and Chief of Enforcement, "Although FINRA's rules afford firms the flexibility to tailor procedures that are appropriate for their particular business models, all firms must have the ability to flag emails that may evidence misconduct. Relying on brokers to provide copies of their own emails to supervisors for review is hardly an effective means to detect such misconduct."
According to FINRA, MetLife Securities' inability to ensure compliance with the email-forwarding requirement caused the inadequate enforcement of the firm's supervisory procedures relating to outside business activities and private securities transactions.
Related Web Resources
For more background on enforcement and BrokerCheck, go to www.finra.org.
Contact the securities lawyers of Gusrae, Kaplan, Nusbaum and Bruno, PLLC, for more information on broker/dealer as well as regulatory and enforcement representation.
