Broker-Dealer Settles SEC Charges for Deletion of Required Electronic Business Records

A broker-dealer settled SEC charges for erroneously deleting electronic business records.

In a cease-and-desist Order, the SEC said that the broker dealer engaged a third-party vendor to manage electronic storage of records of communications. The engagement included a representation by the vendor that electronic communications and documents would be retained for the legally required 36-month period. During a process undertaken to delete from its system older communications and documents no longer required to be retained, the broker dealer discovered that "the vendor had failed to properly apply the default thirty-six month retention setting" leading to permanent deletion of "all of the emails from that period which were not subject to legal holds." The SEC found that approximately 47 million electronic communications of employees of the broker-dealer were permanently deleted and unrecoverable. The SEC found that in at least 12 civil securities-related regulatory investigations, eight of which were conducted by the SEC, the broker-dealer was unable to comply with subpoenas and document requests due to such electronic communications having been deleted.

As a result, the SEC concluded that the broker-dealer violated Exchange Act Section 17(a) ("Records and Reports") and Rule 17a-4(b)(4) ("Records to be Preserved by Certain Exchange Members, Brokers and Dealers").

To settle the charges, the broker-dealer agreed to (i) cease and desist from further regulatory violations, (ii) a censure and (iii) pay a $4 million civil money penalty.