SEC to Wall Street: Don't Delete That E-Mail

With investigations increasingly the norm on Wall Street, the SEC has moved to preserve the electronic paper trail at securities firms.

by Brian Morrissey of internetnews.com [August 5, 2002]

According to reports, regulators at the Securities and Exchange Commission 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 reported that 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.

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