Little Rock, Arkansas-based brokerage firm Stephens Inc., has been fined $900,000 by the Financial Industry Regulatory Authority after allegedly providing inadequate supervision of firm-wide internal “flash” emails. The emails — sent by the firm’s research analysts — included information about industries and companies covered by the firm’s research department.
According to FINRA’s claim, Stephens’ failures created the risk that material non-public information could have been misused by personnel in sales and trading. Stephens neither admitted nor denied FINRA’s charges, but will stop distributing flash emails in this manner. Stephens also consented to developing a plan for comprehensive reviews of training, procedures, and policies in the research department.
The firm’s flash email program was set up to allow researchers to share information in an expedited way within the firm.
FINRA’s investigation found that between August 2013 and January 2016, the content and dissemination of the emails were not properly supervised and the firm did not have adequate policies and procedures in place. The investigation also found that employees at the firm also forwarded emails labeled for “internal use only” to their customers. In at least one instance, FINRA also found that content from an unapproved, draft research report was cut and pasted into a flash email. Although these practices were contrary to firm policy, FINRA found that the firm lacked effective monitoring or supervisory systems to detect or prevent them.
FINRA’s Executive Vice President and Chief of Enforcement Brad Bennett made the following statement,
The supervision of internal communications by research analysts to the sales force requires extreme vigilance given the possibility of revealing material nonpublic information in advance of published research. Today's action reminds those firms that permit such communications of the need to supervise and monitor them, and to ensure that their controls protect against trading based on the information.
