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FINRA Fines Georgia BD for Improper Electronic Communications Management

H2C Securities, a FINRA member firm since 1976, has come under scrutiny due to its failure to comply with regulatory requirements. The matter originated from a FINRA Rule 4530 disclosure filed by the firm in April 2021.

FINRA found that between January 2013 and June 2021, H2C failed to adequately preserve and review over 1.25 million business-related electronic communications. These communications included internal and external emails, instant messages, mass marketing materials, and documents requiring customers’ electronic signatures. Notably, these lapses occurred across four communication platforms accessible to individuals within the firm.

As a result, FINRA says H2C violated Section 17(a) of the Securities Exchange Act of 1934, Exchange Act Rule 17a-4, NASD Rule 3010, and FINRA Rules 3110, 4511, and 2010. H2C submitted a Letter of Acceptance, Waiver, and Consent for the purpose of proposing a settlement of the alleged rule violation. They accepted and consented to FINRA’s findings without admitting or denying them.

During the years examined, H2C’s supervisory system failed to address the use of the four platforms at issue or how it would capture, preserve, and review communications made through them. The firm’s written supervisory procedures failed to identify that employees had access to these platforms; the circumstances under which employees could use these platforms for electronic communications; and how the firm would preserve and review communications made through these platforms.

Additionally, H2C did not conduct any reviews of its system to preserve electronic communications sent or received through the four platforms until March 2021. At that time during a compliance review, H2C discovered that it had not established data feeds from the four platforms to the system that the firm used to store and maintain electronic communications. H2C discontinued its use of three of the communication platforms in April 2021, and in July 2021, it established a data feed from the remaining platform to the firm’s system for storing and maintaining electronic communications.

H2C has since retrieved and reviewed some communications that employees sent or received using the four platforms, but the firm has been unable to recover most of the communications. The vast majority were mass marketing emails sent to large distribution lists. The firm preserved at least one copy of many of the mass marketing communications, but it did not preserve a copy of each message sent to each recipient.

In H2C’s letter, it consents to a censure, $250,000 fine, and an undertaking that, within 60 days of the date of the notice of acceptance of this AWC, it will certify in writing that it has remediated the issues identified in this AWC and implemented a supervisory system, including written supervisory procedures, to comply with regulatory requirements.

Headquartered in Atlanta, Ga., H2C provides investment banking and strategic advisory services to institutional investors. It has 33 registered representatives and four branch offices.

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