Large Firm to Pay $25 Million for Insufficient Electronic Communication Surveillance
A large broker-dealer agreed to pay $25 Million and admit relevant facts to settle charges that it failed to reasonably supervise its trading desk alleged to have misled customers about RMBS pricing. The SEC asserts that the respondent’s electronic communications surveillance did not include Bloomberg group chats where traders communicated much of the misleading pricing information. Also, the SEC faults the firm for failing to provide supervisors with the tools to “meaningfully review” electronic communications because the supervisors did not conduct sample pricing testing comparing communicated prices to actual prices. The firm relied on an automated system to select a sample of electronic communications for supervisory review.
OUR TAKE: This case offers some insight into how much electronic communications surveillance is enough. According to the SEC in this case, relying solely on reviews of keyword search output from one of the commercial electronic review applications will not suffice. Firms need to equip and train supervisors to look for specific risks.