Securities Lawyers Blog
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.