Wednesday, April 13, 2011

SEC Charges Brokerage Executives With Violations of Regulation S-P

On April 7, 2011, the SEC charged three former brokerage executives for failing to protect confidential information about their customers in violation of Regulation S-P. Regulation S-P prohibits any broker or dealer, any investment company, or any investment adviser registered with the SEC under the Investment Advisers Act of 1940 from disclosing any nonpublic personal information about a consumer to a non-affiliated third party. "Nonpublic personal information" can include, among other things, the fact that an individual is or has been one of your customers or has obtained a financial product or service from you.

The SEC found that while GunnAllen Financial, Inc., was winding down its business operations last year, its former president and former national sales manager violated customer privacy rules by improperly transferring customer records to another firm. The SEC also found that the former chief compliance officer failed to ensure that the firm's policies and procedures were reasonably designed to safeguard confidential customer information.

According to the SEC's orders, GunnAllen's former president authorized the former national sales manager to take information from more than 16,000 GunnAllen accounts to his new employer. The former sales manager downloaded customer names and addresses, account numbers, and asset values to a portable thumb drive, and provided the records to his new employer after resigning from GunnAllen. The SEC found that the record transfer violated Regulation S-P because account holders were only informed about it after the fact.

Without admitting or denying the SEC's findings, the individuals consented to the entry of an SEC order that censures them and requires them to cease and desist from committing or causing any violations or future violations of the provisions charged. The order also imposed financial penalties against them. This is the first time that the SEC has assessed financial penalties against individuals charged solely with violations of Regulation S-P.

A copy of the SEC's press release can be found here.

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