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News June 28, 2004 Issue

E-mails: A Quick Primer

In case you are new to the e-mail issue, here’s a quick overview of what the SEC expects advisers to be doing about e-mails.

There are two golden rules to keep in mind. First, in deciding whether e-mail is subject to retention under Advisers Act 204-2, advisers should treat e-mail communications the same way as if they were in paper form. As SEC associate director Gene Gohlke put it at a May 24 ICAA workshop: “There is no requirement to save every e-mail that comes through a firm. . . . an adviser only needs to keep e-mails that contain information that is captured under the books and records rule, Rule 204-2.” While he said that “any other information in e-mails can be destroyed,” he cautioned that unless firms have “some process for reviewing e-mails before they are destroyed,” a firm might inadvertently destroy required information. Spam aside, said Gohlke, “how do you know that an e-mail that a portfolio manager gets from somebody in the back office doesn’t contain a piece of information that ought to be kept unless that portfolio manager is well versed in the books and records rule, which is doubtful . . . . that’s why I think many firms just decide it’s too costly to look at every e-mail and just keep them all.”

The second golden rule: if an e-mail exists somewhere on your firm’s computers, servers, tapes, etc., SEC examiners can ask to see it, even if it isn’t covered by Rule 204-2, unless it is privileged. So yes, they can request and review your employees’ personal e-mails. However, IM Insight has been hearing that during recent exams of advisory firms, examiners are not asking to see personal e-mails.

There’s really no official SEC guidance on e-mails, although the ICAA has asked the SEC staff to provide just that. The ICAA’s Caroline Schaefer said that the staff agreed that some guidance “may be useful” and said that the staff of the Division of Investment Management and Office of Compliance Inspections and Examinations “are thinking it through.”

Lastly, there has been some speculation that the SEC will eventually move to a “business-as-such” standard under the Advisers Act recordkeeping rule, effectively broadening the range of e-mails required to be maintained.