Benjamin F. Edwards & Co., Inc has agreed to pay a fine of $750,000 as a part of a settlement with the Financial Industry Regulatory Authority (FINRA).

Between at least October 2019 and December 2023, the firm’s written supervisory procedures (WSPs) generally prohibited the business use of text messaging except those sent or received through a firm-approved software that would capture and preserve the text messages.

However, the firm’s supervisory system, including its written procedures, was not reasonably designed because the fum had no process or procedures, written or otherwise, for monitoring for compliance with its text messaging policies.

Notwithstanding the prohibition against using text messaging except through the firm-approved software, registered representatives of the firm, including at least one senior executive, used text messaging for business-related communications through unapproved means.

Discovery sanctions were imposed against the firm in October 2019, but the firm failed to take reasonable steps to comply with its obligations to reasonably supervise, preserve, and review business-related communications despite this red flag.

In May 2023, Benjamin Edwards retained a consultant to review the firm’s supervision of text messaging. Based on recommendations from the consultant, by December 2023, the firm had, among other things, (a) strengthened its WSPs concerning text messaging; (b) required regular certifications concerning its text messaging policies; (c) increased communications and training concerning its text messaging policies; and (d) strengthened its electronic communication monitoring systems.

By failing to reasonably supervise its employees’ use of text messaging and failing to review business-related text messages of registered representatives, Benjamin Edwards violated FINRA Rules 3110(a), 3110(b), and 2010.

Between October 2019 and December 2023, the firm failed to obtain or preserve all business-related text messages at the time they were exchanged. Although the total number of messages is unknown, during this time period, at least five registered representatives, including one senior executive, sent and received at least 3,560 text messages to communicate about firm business through unapproved text messaging applications on their personal devices.

These text messages involved, among other things, receiving investment directives and sensitive personal information from customers and giving investment advice to customers. Benjamin Edwards was able to recover certain of these text messages during FINRA’s investigation.

Therefore, Benjamin Edwards violated § 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, and FINRA Rules 4511 and 2010.

In September 2017, a FINRA member firm filed an arbitration against Benjamin Edwards and certain of its registered representatives related to Benjamin Edwards’ recruiting of four of its registered representatives. Benjamin Edwards received discovery requests in December 2017 for electronic communications relevant to the dispute dating back to before September 2016. The arbitration panel issued orders in October 2018 compelling Benjamin Edwards to produce the requested communications by November 2018, which included business-related text messages.

Benjamin Edwards failed to timely and fully comply with the arbitration panel’s orders, and the arbitration panel issued an order in May 2019 imposing sanctions.

In July 2019, the arbitration panel paused the proceeding and ordered depositions of registered representatives of the firm related to, among other things, potentially discoverable text messages.

The depositions revealed the existence of responsive text messages that had not been produced in discovery. Subsequently, Benjamin Edwards was belatedly able to obtain and produce some, but not all, of the responsive text messages. In October 2019, the arbitration panel issued a second order imposing additional sanctions because Benjamin Edwards did not cure the discovery deficiency.

Therefore, Benjamin Edwards violated FINRA Rule 2010.

On top of the $750,000 fine, the firm has agreed to a censure.