Most reps work under the assumption that all their professional correspondence could be scrutinized, and the SEC now is telling them that assumption is dead on.
At an “SEC Speaks” conference in Washington in March, sponsored by the Practising Law Institute, SEC Chairman William Donaldson said that government investigators will require every advisor and every firm to archive all internal emails for a minimum of five years. That's everything, from internal memos to correspondence with clients. (Most firms already block reps from using third-party email providers like Hotmail.)
The SEC said nothing specific about potential fines for firms that don't comply, but there was little doubt about the gravity of the imperative.
“Everyone's going to have to keep all their emails, like they keep all their books and records,” says Michael Tannenbaum, founding partner of Tannenbaum Helpern Syracuse & Hirschtritt, a New York-based financial services law firm. “Everyone in the industry needs to understand and realize that emails are discoverable. It's part of human nature to think that emails are chatty; you let your guard down.”
Many fear that such a wide-ranging initiative could put undue stress on smaller broker/dealers, which lack the archiving resources of wirehouses. Storage capabilities are limited, says one executive at a broker/dealer with fewer than 500 reps, and the expense involved in paying for off-site storage or internal archiving systems are “prohibitive, and potentially crippling.”
But that's not going to make much difference to the SEC when it comes calling for records.
“As you go down the chain of firms and they get smaller, it becomes more and more of a burden, financially,” Tannenbaum says. “You can't just throw anything away, and that space costs money.”
