UBS Securities to Pay $2.1 Million in Penalties and Fines for Failure to Preserve Email

On July 13, 2005 the Securities and Exchange Commission (“Commission”) issued an Order in connection with the alleged failure of UBS Securities LLC (“UBS”) to preserve email. The Commission accepted an Offer of Settlement and UBS consented to entry of the Order without admitting or denying any findings of wrongdoing.

The Commission discovered the email preservation deficiencies during an investigation into supervision of UBS’s research and investment banking activities. It found that UBS willfully violated Rule 17a-4(b)(4) by failing to preserve for three years (the first two of which in an easily accessible place) all email related to its business as a member of an exchange, broker, or dealer. UBS lacked adequate systems and procedures to ensure such preservation.

During the initial inquiry which began in April 2002, UBS “…was not able to locate restorable backup tape for the entire time period [July 1, 1999 to June 30, 2001] for every person whose e-mail had been requested.” In May 2003, regulators requested email from UBS in connection with a further inquiry. UBS produced certain email in response, but subsequently admitted that some email was unavailable. It provided the following reasons for its failure to retain, locate, and/or restore all responsive email:

-certain backup tapes containing responsive e-mail of UBS employees could not be located
-certain backup tapes containing responsive e-mail were located but did not contain e-mail, although a log had been generated indicating that the e-mail had been successfully backed-up
-e-mail on certain backup tapes was corrupted and unreadable
-certain backup tapes were re-cycled in violation of UBS’s policies, so that the responsive e-mails had been taped over
-certain tapes were mislabeled
-certain backup tapes from servers that had been located at PaineWebber facilities prior to the November 2000 merger of PaineWebber and UBS AG were never found.

UBS is to pay $700,000 in civil penalties to the US Treasury and fines of $700,000 to the New York Stock Exchange, Inc. and $700,000 to NASD, Inc. It also undertakes to review its preservation systems and establish systems and procedures designed to achieve compliance with applicable laws, regulations, and rules.

Full text of the Commission’s Order can be found here.

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