With investigations increasingly the norm on Wall Street, the Securities and
Exchange Commission (SEC) has moved to preserve the electronic paper trail
at securities firms.
According to reports, SEC regulators want to fine six top investment houses
a total of $10 million for failing to preserve e-mails for regulators
investigating the firms’ handling of initial public offerings and analysts’
conflicts of interest during the go-go days of the stock market boom.
The Wall Street Journal this morning reported the SEC has moved to levy
$1.67 million fines against Salomon Smith Barney, Morgan Stanley, Goldman
Sachs, Merrill Lynch, Deutsche Bank, and U.S. Bancorp Piper Jaffray. The
paper said the firms had received notices from the SEC, the National
Association of Securities Dealers or the New York Stock Exchange informing
them that their enforcement teams had recommended penalties for not
producing e-mails when requested by regulators.
SEC regulations require securities firms to keep all business records,
including e-mails, for three years. However, Wall Street and the SEC have
sparred over what exactly is required in e-mail retention policies.
The SEC’s move comes after e-mail played a prominent role in New York
Attorney General Elliot Spitzer’s investigation of Merrill Lynch for
conflicts of interest. Spitzer eventually wrung a $100 million settlement
from Merrill, after exceedingly candid and embarrassing e-mails from its
analysts were used by Spitzer to put the company on the defensive. Spitzer
displayed e-mail from Merrill’s former star analyst Henry Blodget calling
InfoSpace, whose stock he rated favorably, “a piece of junk.”
With the rampant document destruction at Arthur Andersen following Enron’s
collapse, the SEC’s fines could be seen as a warning to Wall Street firms
that might find themselves in the crosshairs of regulatory investigations.
