Regulators Crack Down on Record Keeping and Broker Communications via E-mail, Text Message, WhatsApp, and Social Media

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After temporarily lifting some of their rules during the 2020 COVID-19 pandemic, regulators have resumed cracking down on firms who fail to keep accurate books and records, including electronic communications with customers.

FINRA has long required firms to establish and maintain accurate books and records including records of written communications with customers.  The record keeping requirements mean brokers are less likely to engage in misconduct knowing their communications with clients is on the record and investigators are more likely to find wrongdoing in order to help make harmed investors whole again when written communications are available to them.

When a firm fails to preserve its books and records, including electronic communications in the form of e-mails, text messages, WhatsApp conversations, or social media messages, investors are placed in jeopardy due to a lack of adequate supervision.  Many of FINRA's disciplinary actions regarding failure to maintain accurate records also include a charge of failure to supervise a rogue representative or broker.

For instance, FINRA in 2020 found that Aegis Capital Corp's Paul A. Falcon used the WhatsApp Messenger app to conduct securities-related business, in contravention of industry rules.

FINRA also found that Laidlaw & Company failed to preserve business-related electronic communications in the form of text messages sent and received using the disciplined brokers' personal (not corporate) mobile phones.

In 2016, FINRA fined 12 firms (including Georgeson Securities Corporation, LPL Financial, PNC Capital Markets, RBC Capital Markets, RBS Securities, SunTrust Robinson Humphrey, Wells Fargo Advisors, and Wells Fargo Securities) a total of $14.4 million for cybersecurity and data protection failures which included deficiencies in the preservation of electronic brokerage and customer records, and in 2015, FINRA fined Scottrade, Inc. $2.6 million for electronic record violations related to e-mails.

According to FINRA, "Ensuring the integrity of these records is critical to the investor protection function because they are a primary means by which regulators examine for misconduct in the securities industry."

If you have invested with a broker, financial adviser, or representative who solicited transactions, made unsuitable recommendations, or engaged in other inappropriate communications away from the firm—for instance using text messages, personal e-mails, off-record WhatsApp conversation, or social media—and these off-the-record discussions resulted in transactions that have proven harmful to your investments or interests, please call an experienced FINRA arbitration attorney at The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.

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