FINRA Fines Scottrade $2.6 Million for Significant Failures in Required Electronic Records and Email Retention

WASHINGTON–(BUSINESS WIRE)–The Financial Industry Regulatory Authority (FINRA) announced today that
it fined Scottrade, Inc. $2.6 million for failing to retain a large
number of securities-related electronic records in the required format,
and for failing to retain certain categories of outgoing emails.
Scottrade also did not have a reasonable supervisory system in place to
achieve compliance with certain Securities and Exchange Commission (SEC)
and FINRA books and records rules, which contributed to its
record-retention failures.

Federal securities laws and FINRA rules require that business-related
electronic records be kept in non-rewritable, non-erasable format (also
referred to as “Write-Once, Read-Many” or “WORM” format) to prevent
alteration. The SEC has stated that these requirements are an essential
part of the investor protection function because a firm’s books and
records are the “primary means of monitoring compliance with applicable
securities laws, including antifraud provisions and financial
responsibility standards.”

FINRA found that from January 2011 to January 2014, Scottrade did not
have centralized document-retention processes or procedures for all firm
departments to follow. Further, no one at the firm was charged with
responsibility for ensuring a consistent document-retention process,
fully compliant with the record-retention rules, including the
requirement that all records be retained in WORM format. Personnel in
different departments of the firm saved certain documents to a
restricted shared drive, which was not WORM-compliant. As a result,
Scottrade failed to preserve a large number of key securities business
electronic records in the required format.

Over a related time frame, FINRA found that Scottrade also failed to
copy more than 168 million outgoing emails to the firm’s WORM storage
device, resulting in the deletion of those emails. These emails were
generated automatically by the firm’s internal systems or by third-party
vendors acting on Scottrade’s behalf, and included items such as margin
call notices, address change notifications and failed password attempt
notifications.

Brad Bennett, Executive Vice President and Chief of Enforcement, said,
“Firms must maintain sound supervisory systems and procedures to ensure
the integrity, accuracy, and accessibility of electronic books and
records.”

In concluding this settlement, Scottrade neither admitted nor denied the
charges, but consented to the entry of FINRA’s findings.

Investors can obtain more information about, and the disciplinary record
of, any FINRA-registered broker or brokerage firm by using FINRA’s
BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2014,
members of the public used this service to conduct 18.9 million reviews
of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck
or by calling (800) 289-9999. Investors may find copies of this
disciplinary action as well as other disciplinary documents in FINRA’s
Disciplinary Actions Online database. Investors can also call FINRA’s Securities
Helpline for Seniors at (844) 57-HELPS for assistance or to
raise concerns about issues they have with their brokerage accounts and
investments.

FINRA, the Financial Industry Regulatory Authority, is the largest
independent regulator for all securities firms doing business in the
United States. FINRA is dedicated to investor protection and market
integrity through effective and efficient regulation and complementary
compliance and technology-based services. FINRA touches virtually every
aspect of the securities business – from registering and educating all
industry participants to examining securities firms, writing rules,
enforcing those rules and the federal securities laws, and informing and
educating the investing public. In addition, FINRA provides surveillance
and other regulatory services for equities and options markets, as well
as trade reporting and other industry utilities. FINRA also administers
the largest dispute resolution forum for investors and firms. For more
information, please visit www.finra.org.

Contacts

Financial Industry Regulatory Authority (FINRA)
Michelle
Ong (202) 728-8464
Nancy
Condon (202) 728-8379