United States: FINRA Fines Firm For Failure To Adequately Supervise "Flash" Email Distribution

FINRA censured a broker-dealer and fined it $900,000 for supervising the content and dissemination of "flash" emails inadequately. The emails, which were sent by research analysts to sales and trading personnel, contained information about companies and industries that were covered by the firm.

According to FINRA, the flash email program was designed to provide an expeditious way for research analysts within the firm to share publicly available information with the firm's sales and trading personnel. However, FINRA alleged, these analysts frequently used flash emails to disseminate nonpublic information regarding upcoming research reports.

FINRA found that the firm did not have adequate policies and procedures in place for supervising the content of the flash emails, which introduced the risk that material nonpublic information might be included in the emails and could then be misused by sales and trading personnel. Additionally, FINRA found (i) instances of firm personnel forwarding flash emails marked "internal use only" to customers, or copying and pasting the text of internal-use emails into separate emails or text messages sent to customers, and (ii) that content from an unapproved, draft research report had been copied and pasted into a flash email.

Commentary

Firms should review the broker-dealer's acceptance, waiver and consent letter ("AWC"), which indicates the kinds of measures that FINRA expects firms to implement in supervising the internal communications between research analysts and sales personnel. FINRA Chief of Enforcement, Brad Bennett, urged firms to exercise "extreme vigilance" when supervising internal communications between research analysts and the sales personnel in order to avoid revealing material nonpublic information before publishing research. As this case illustrates, firms that fail to be vigilant are likely to face tough sanctions.

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