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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Wednesday, November 18, 2009

FINRA Fines MetLife for Supervisory Failures over Brokers' Email

FINRA announced today that it has fined MetLife Securities, Inc., and three of its affiliates a total of $1.2 million for failing to establish an adequate supervisory system for the review of brokers' email correspondence with the public. The fine also resolves charges of failing to establish adequate supervisory procedures relating to broker participation in outside business activities and private securities transactions.  Those failures allowed two MetLife Securities brokers to engage in undisclosed outside business activities and private securities transactions without detection by the firm, costing some firm customers millions of dollars.

The three MetLife Securities affiliates are New England Securities Corp., Walnut Street Securities, Inc. and Tower Square Securities, Inc. All are headquartered in New York.

 From March 1999 to December 2006, MetLife Securities and its affiliate broker-dealers had in place written supervisory procedures mandating that all securities-related emails of brokers be reviewed by a supervisor. However, the firms did not have a system in place that enabled supervisors to directly monitor the email communications of brokers. Instead, the firms relied on the brokers themselves to forward their emails to supervisors for review. To monitor compliance with the email-forwarding requirement, the firms encouraged — but did not require — managers to inspect brokers' computers for any emails that had not been forwarded as required. But brokers were able to delete their emails from their assigned computers, thus rendering spot-checks unreliable.

 The firms also conducted annual branch audits, which were likewise ineffective because they did not allow for timely detection of email-forwarding failures. Moreover, the method employed by the auditors to identify email-forwarding deficiencies (prior to July 2005) was itself flawed, consisting mainly of a review of hard-copy files for any correspondence (including emails) that had not been forwarded. Brokers were therefore able to withhold emails without detection by the firm and conceal evidence or "red flags" of misconduct contained in their emails.

 FINRA also found that the firms' inability to ensure compliance with the email-forwarding requirement meant they could not adequately enforce their own supervisory procedures relating to outside business activities and private securities transactions.

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

 

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