Stephens Inc., the Little Rock investment bank, has agreed to a $900,000 fine for failing to supervise use of internal emails concerning analysis of companies and industries.
FINRA, the Financial Industry Regulatory Authority, announced the censure on Wednesday. Stephens Inc. consented to the fine without admitting or denying the findings, and spokesman Frank Thomas told Arkansas Business that Stephens Inc. would not comment on the order.
(See the FINRA order here.)
According to FINRA's announcement, the failure to supervise the "flash" emails sent internally by research analysts created the risk that the contents "could potentially include material nonpublic information that might be misused by sales and trading personnel."
The period covered by the order stretched "from at least August 2013 through January 2016," according to FINRA. The investigation "found instances of firm personnel forwarding flash emails marked 'internal use only' to customers, or cutting and pasting the text of an internal-use email into a separate communication sent to a customer," according to a news release announcing the fine.
"In at least one instance," the release said, "FINRA also found that content from an unapproved, draft research report was cut and pasted into a flash email. Although these practices were contrary to firm policy, FINRA found that the firm lacked effective monitoring or supervisory systems to detect or prevent them."
The order includes four "illustrative scenarios" concerning five companies about which flash emails were circulated. In one case dating to August 2013, Stephens employees and clients who received one of the emails "traded advantageously" in shares of a company whose stock was about to be downgraded by Stephens.
Brad Bennett, FINRA's executive vice president and chief of enforcement, said, "The supervision of internal communications by research analysts to the sales force requires extreme vigilance given the possibility of revealing material nonpublic information in advance of published research. Today's action reminds those firms that permit such communications of the need to supervise and monitor them, and to ensure that their controls protect against trading based on the information."