Wall Street Firms Fined for Not Saving E-Mail

But brokerages remain mum on technology fixes

Five top Wall Street brokerages last week agreed to pay a total of $8.25 million in fines for improperly storing e-mail and promised to establish new systems and procedures for ensuring that they comply with government requirements.

But none of the firms would disclose what they plan to do from a technology standpoint to make sure the e-mail messages employees send and receive are retained. "We have 90 days to respond to this," said Ted Meyer, a spokesman for Deutsche Bank Securities Inc., one of the fined brokerages. "It's something we're reviewing at the moment."

The U.S. Securities and Exchange Commission, the New York Stock Exchange and the National Association of Securities Dealers Inc. (NASD), which is in the process of cutting its ties with the Nasdaq Stock Market, said that they each investigated the way the brokerages handled e-mail dating back to 1999. In a joint statement, the regulators said all of the firms had "inadequate procedures and systems to retain and make accessible e-mail communications."

In addition to Deutsche Bank Securities, the targeted firms included Goldman Sachs & Co., Morgan Stanley, Salomon Smith Barney Inc. and U.S. Bancorp Piper Jaffray Inc. Without admitting to or denying the allegations, each of the brokerages agreed to pay a fine of $1.65 million.

The SEC, the NYSE and the NASD require financial services firms to retain e-mail traffic for three years and store it in an accessible system for two years. They cited a variety of shortcomings at the five companies.

For example, some relied on employees to store copies of e-mail messages on their local disk drives, but systems to ensure that workers did so were inadequate, the regulators said. And in some cases, PC disk drives that contained stored e-mail were erased when employees left their jobs.

Jim Phillips, CIO at First Southwest Co., a Dallas-based brokerage, said regulators in recent months have become more forceful about looking into whether firms are properly retaining e-mail. "We're seeing continual asking of the questions," he said. "We've been fortunate in that we've been able to answer them."

Three years ago, First Southwest rolled out software developed by Redwood City, Calif.-based Tumbleweed Communications Corp. that archives and monitors about 8,000 e-mail messages per day across 21 branch offices. The brokerage uses Tumbleweed's software on its Microsoft Exchange e-mail servers to screen out inappropriate messages and to save all e-mail to network-attached storage, tape and optical disk systems, Phillips said.

"We're a bit paranoid," he noted. "When we began to put file servers into all our offices, and all our desktops then had e-mail, we began to back up all our e-mail."

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What Went Wrong

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Some firms backed up e-mail on tape or other storage media but discarded, recycled or overwrote the messages less than a year later.

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Each of the firms had inadequate procedures and systems for making sure e-mail was being stored and was accessible.

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Some firms stored messages in an unorganized way, such as relying on end users to save copies on their PC disk drives.

Copyright © 2002 IDG Communications, Inc.

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