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.