Deutsche Bank Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., and U.S. Bancorp Piper Jaffray Inc.

SECURITIES EXCHANGE ACT OF 1934
RELEASE NO. 46937 / DECEMBER 3, 2002

ADMINISTRATIVE PROCEEDING
FILE NO. 3-10957

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings pursuant to Section 15(b)(4) and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), be and hereby are instituted against Deutsche Bank Securities, Inc., Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., and U.S. Bancorp Piper Jaffray Inc. (collectively, "Respondents").

II.

In anticipation of the institution of these proceedings, the Respondents have each submitted Offers of Settlement ("Offers") to the Commission, which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, the Respondents, without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and over the subject matter of these proceedings, consent to the entry of this Order Instituting Proceedings Pursuant to Section 15(b)(4) and Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Orders, Penalties, And Other Relief ("Order").

Accordingly, it is ordered that proceedings pursuant to Exchange Act Section 15(b)(4) and Section 21C be, and hereby are, instituted.

III.

On the basis of this Order and the Respondents' Offers, the Commission finds that:

A. RESPONDENTS

Deutsche Bank Securities, Inc., is a Delaware corporation with its principal place of business in New York, New York. Deutsche Bank is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act and is a member of NASD and the New York Stock Exchange. Deutsche Bank engages in a nationwide securities business.

Goldman, Sachs & Co. is a New York limited partnership with its principal place of business in New York, New York. Goldman Sachs is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, and is a member of NASD and the New York Stock Exchange. Goldman Sachs engages in a nationwide securities business.

Morgan Stanley & Co. Incorporated is a Delaware corporation with its principal place of business in New York, New York. Morgan Stanley is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, and is a member of NASD and the New York Stock Exchange. Morgan Stanley engages in a nationwide securities business.

Salomon Smith Barney Inc. is a New York corporation with its principal place of business in New York, New York. Salomon Smith Barney is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, and is a member of NASD and the New York Stock Exchange. Salomon Smith Barney engages in a nationwide securities business.

U.S. Bancorp Piper Jaffray Inc. is a Delaware corporation with its principal place of business in Minneapolis, Minnesota. U.S. Bancorp Piper Jaffray is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act, and is a member of NASD and the New York Stock Exchange. U.S. Bancorp Piper Jaffray engages in a nationwide securities business.

B. SUMMARY

This action concerns Respondents' violations of the record-keeping requirements of Section 17(a) of the Exchange Act and Rule 17a-4 thereunder during the period from 1999 to at least 2001 (the "relevant period"). During all or part of the relevant period, each Respondent failed to preserve for three years, and/or to preserve in an accessible place for two years, electronic mail communications (including inter-office memoranda and communications) received and sent by its agents and employees that related to its business as a member of an exchange, broker or dealer. Each Respondent lacked adequate systems or procedures for the preservation of electronic mail communications.

C. FACTS

The facts specific to these proceedings are set forth below:

1. The employees of each Respondent used electronic mail communications in part to conduct the Respondent's business as a broker, dealer and member of an exchange.

2. Respondents failed to preserve copies of electronic mail communications for three years, and/or maintain electronic mail communications for the first two years in an accessible place. Respondents did not have adequate systems or procedures in place during all or part of the relevant period to retain and/or make accessible electronic mail communications. Each Respondent's failure to preserve electronic mail communications and/or to maintain them in an accessible place was discovered during investigations being conducted jointly and separately by the Commission, the New York Stock Exchange, and NASD. The deficiencies in Respondents' systems and procedures for the preservation of electronic mail communications preexisted these investigations.

3. Some Respondents backed up electronic mail communications on tape or other media that Respondents represent was part of a process designed as a disaster recovery or business continuity measure, or for another business purpose. While some Respondents relied on these backups to preserve electronic mail communications during the relevant period, Respondents had inadequate systems or procedures to ensure the retention of such back-ups for three years and/or to maintain such data in a readily accessible manner for two years. These Respondents discarded, or recycled and overwrote their back-up tapes and other media, often a year or less after back-up occurred. In those instances in which Respondents did retain electronic mail communications, those electronic mail communications were often stored in an unorganized fashion on backup tapes, other media, or on the hard drives of computers used by individual employees of Respondents. Before the filing of these proceedings, one or more Respondents took steps to develop new database systems for the retention of electronic mail communications.

4. While some Respondents relied upon employees to preserve copies of their electronic mail communications on the hard drives of their individual personal computers or elsewhere, and many e-mails were preserved, there were inadequate systems or procedures to ensure that employees did so for the requisite record-keeping period. In some instances, hard drives of computers were erased when individuals left the employment of the Respondent.

D. LEGAL DISCUSSION

Section 17(a)(1) of the Exchange Act provides that each member of a national securities exchange, broker, or dealer "shall make and keep for prescribed periods such records, furnish copies thereof, and make and disseminate such reports as the Commission, by rule, prescribes as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title."

The Commission has emphasized the importance of the records required by the rules as "the basic source documents" of a broker-dealer. Statement Regarding the Maintenance of Current Books and Records by Brokers and Dealers, 4 SEC Docket 195 (April 6, 1974). The record keeping rules are "a keystone of the surveillance of broker and dealers by [Commission] staff and by the securities industry's self-regulatory bodies." Edward J. Mawod & Co., 46 S.E.C. 865, 873 n.39 (1977) (citation omitted), aff'd sub nom. Mawod & Co. v. SEC, 591 F.2d 588 (10^th Cir. 1979).

Pursuant to its authority under Section 17(a)(1) of the Exchange Act, the Commission promulgated Rule 17a-4. Rule 17a-4(b)(4) in turn requires each Respondent to "preserve for a period of not less than 3 years, the first two years in an accessible place.... [o]riginals of all communications received and copies of all communications sent by such member, broker or dealer (including inter-office memoranda and communications) relating to his business as such." Rule 17a-4 is not by its terms limited to physical documents. The Commission has stated that internal electronic mail communications relating to a broker-dealer's "business as such" fall within the purview of Rule 17a-4 and that, for the purposes of Rule 17a-4, "the content of the electronic communication is determinative" as to whether that communication is required to be retained and accessible. Reporting Requirements for Brokers or Dealers under the Securities Exchange Act of 1934, Rel. No. 34-38245 (Feb. 5, 1997).

Based on the foregoing and Respondents' Offers of Settlement, the Commission finds that with respect to electronic mail communications during the relevant period, each Respondent willfully violated Section 17(a) of the Exchange Act and Rule 17a-4 promulgated thereunder by failing to preserve electronic mail communications for three years, and/or by failing to preserve electronic mail communications for the first two years in an accessible place.¹

IV.

Each Respondent has undertaken to review its procedures regarding the preservation of electronic mail communications for compliance with the federal securities laws and regulations, and the rules of NASD and New York Stock Exchange. Within 90 days of the issuance of this Order, unless otherwise extended by the staff of the Commission for good cause shown, each Respondent undertakes and agrees to inform the Commission in writing that it has completed its review and that it has established systems and procedures reasonably designed to achieve compliance with those laws, regulations, and rules concerning the preservation of electronic mail communications.

V.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondents' Offers.

ACCORDINGLY, IT IS HEREBY ORDERED:

1. Respondents, and each of them, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Exchange Act and Rule 17a-4 promulgated thereunder.

2. Respondents, and each of them, are censured pursuant to Section 15(b)(4) of the Exchange Act.

3. Each Respondent shall, within ten days of the entry of this Order, pay the amount of $1,650,000, for a total of $8,250,000 by all named Respondents. Each Respondent shall make payment as follows: (i) pursuant to Section 15(b)(4) and Section 21B of the Exchange Act, Respondent shall pay a civil monetary penalty of $550,000 to the United States Treasury; (ii) pursuant to Respondent's agreement with NASD in related proceedings, Respondent shall pay a fine in the amount of $550,000 to NASD; and (iii) pursuant to Respondent's agreement with the New York Stock Exchange in related proceedings, Respondent shall pay a fine in the amount of $550,000 to the New York Stock Exchange. Such payment to the U.S. Treasury shall be: (A) made by United States postal money order, certified check, bank cashier's check or bank money order; (B) made payable to the Securities and Exchange Commission; (C) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Stop 0-3, Alexandria, VA 22312; and (D) submitted under cover letter that identifies the payor as a Respondent in these proceedings, the file number of these proceedings, a copy of which cover letter and money order or check shall be sent to Antonia Chion, Associate Director, Division of Enforcement, Securities and Exchange Commission, 450 5th Street N.W., Washington, D.C. 20549-0801.

4. Each Respondent shall comply with the undertaking contained in Section IV., above.

By the Commission.

Jonathan G. Katz
Secretary

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