A Deloitte subsidiary's $200,000 "slap on the wrist" from FINRA for a repeat violation of recordkeeping rules shows just how much ground brokers stand to gain by cooperating with regulators.
That was the takeaway from Brett Evans, a securities and corporate lawyer and the principal at Orange County, California-based Evans Law. Evans said he would have expected the Financial Industry Regulatory Authority, the self-regulating watchdog of brokers, to hit Deloitte Corporate Finance with a much heftier fine to settle allegations that it had failed to keep records of messages sent over company-issued iPhones. That's especially true since the Chicago-based subsidiary, which specializes in mergers and acquisitions for corporate clients, had settled similar charges only a few years before.
The saving grace for Deloitte Corporate Finance, part of the Big 4 accounting and consulting firm Deloitte, Evans said, was likely its decision to report its latest violations itself and then work closely with FINRA on its ensuing investigation, Evans said.
That's a big lesson for other wealth management firms, he added.
"If you discover you've got a violation, you'll want to talk to your counsel about potentially self-reporting," he said.
In its proposed
"Throughout its review, (Deloitte Corporate Finance) provided unprompted, detailed, current information to FINRA about the status of its review, findings, and its planned remedial steps," according to the letter.
At the heart of the allegations lies Deloitte Corporate Finance's decision in July 2017 to let employees start sending text messages for business purposes on company-issued iPhones.
In April 2013, Deloitte Corporate Finance hired the software firm Smarsh to help retain its electronic records, according to
In June 2018, Deloitte noticed that iMessaging had not been turned off on some iPhones issued to new employees. Deloitte Corporate officials speculated that the problem might have been that the phones were running on a new operating system. The company official initially responsible for turning off the iMessage function on company iPhones left a month later and his duties were never fully handed off to someone else.
In January 2022, a Deloitte Corporate official made a reference to text messages that no one could find in the firm's archives. When it was discovered that the texts were sent as iMessages, the company retrieved nearly 100 iPhones issued to employees. Of those, only four were found to have the iMessage function disabled.
Deloitte Corporate Finance immediately reported the violation to FINRA and began cooperating in the ensuing investigation.
"Deloitte Corporate Finance LLC is pleased to have resolved this matter on a consensual basis," according to a statement from the company. "As an organization committed to safeguarding the capital markets, we appreciate FINRA's acknowledgement of our extraordinary cooperation including self-identifying the issue, self-reporting it and promptly working to enhance our related processes and procedures."
Smarsh could not be reached for comment.
Evans said that although a $200,000 fine might seem like a lot, it's actually quite small — especially since it followed a previous settlement by Deloitte Corporate Finance involving similar allegations. In July 2017, the company agreed to pay a $75,000 fine over allegations that it failed to keep adequate records of emails and internal messages for more than seven years starting in 2005.
Evans said the only explanation for a fine being so low for a repeat offense is that Deloitte Corporate Finance's cooperation with FINRA was extensive.
"They are getting a great deal," he said.
As part of its latest settlement with FINRA, Deloitte Corporate Finance agreed to be censured and to put in place a supervisory system to prevent such alleged violations from occurring. The company officially neither confirmed nor denied FINRA's findings.
The Deloitte case is the latest example of how seriously regulators are taking the rules for electronic recordkeeping. In September,
Douglas Schulz, the president of Invest Securities Consulting and a long-time FINRA arbitrator, said the settlement with Deloitte Corporate Finance is clearly a sign that regulators are looking at small and medium-sized firms.
"FINRA is sending a message: We are serious about this, here's what you did wrong, and don't do this again," Schulz said.
