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The failure to retain e-mail communications as required in certain industry sectors can lead to serious consequences. Indeed, the SEC, the NYSE and the NASD recently announced that five major broker-dealers have consented to fines totaling $8.25 million — $1.65 million per firm — for alleged violations of e-mail record-keeping requirements. BACKGROUND During investigations conducted jointly and separately by the SEC, the NYSE and the NASD, it was allegedly discovered that Deutsche Bank Securities Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Inc., Salomon Smith Barney Inc. and US Bancorp Piper Jaffray Inc., failed to retain e-mail communications in accessible places. Some of the firms backed up e-mails on tape or other media in a manner that was represented to be part of a process implemented as disaster recovery or business continuity measures. Nevertheless, these firms discarded or recycled and overwrote their backup tapes and other media frequently a year or less after backups took place. Each of the firms apparently maintained inadequate procedures and systems to retain and make e-mails accessible. Though some of the firms depended on employees to preserve copies of e-mails on the hard drives of their individual personal computers, evidently there were no systems or procedures in place to ensure that employees actually preserved e-mails in this manner. When the firms did retain e-mail communications, the e-mails often were allegedly stored in a disorganized fashion on backup tapes, other media, or on the hard drives of individual employees. In some cases, computer hard drives that contained e-mail communications apparently were erased when individuals left employment. JOINT ACTION AND RESULTING FINES The SEC, NYSE and NASD launched joint actions against the five firms. The actions alleged that the firms violated � 17(a) of the Securities and Exchange Act of 1934, Rule 17a-4 under the Exchange Act, NYSE Rule 440 and NASD 3110 by failing to preserve for a period of three years, and/or failing to preserve in an accessible place for two years, electronic communications relating to the business of the firms, including interoffice memoranda and communications. The actions also asserted that the firms violated NYSE Rule 342 and NASD Rule 3010 by failing to establish, maintain and enforce supervisory systems to ensure compliance with NASD and NYSE rules and federal securities laws relating to retention of electronic communications. As a result of the actions, the firms agreed to fines of $1.65 million per firm, or a total of $8.25 million, to be paid to the U.S. Treasury, the NYSE and the NASD. In addition, the firms agreed to review their procedures regarding the preservation of e-mails for compliance with federal securities laws and NYSE and NASD rules. Furthermore, the firms agreed to inform each regulator in writing within 90 days that it has set up systems and procedures reasonably designed to achieve compliance the statute and rules pertaining to e-mail retention. BOTTOM LINE It pays to know and follow the rules of e-mail preservation and accessibility in particular industry sectors. Companies are wise to seek out experienced counsel who know the rules. Failure to know and follow the rules can lead to fairly serious consequences. Eric Sinrod is a partner in the San Francisco office of Duane Morris ( www.duanemorris.com), where he focuses on litigation matters of various types, including information technology disputes. Mr. Sinrod’s Web site is www.sinrodlaw.com, and he can be reached at [email protected]. To receive a weekly e-mail link to Mr. Sinrod’s columns, please type Subscribe in the subject line of an e-mail to be sent to [email protected].

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