April 8, 2011 – The Securities and Exchange Commission said that for the first time it has fined brokerage executives for violating privacy regulations designed to prevent confidential information on customers from being sent to third parties without their consent.
Frederick Kraus, national sales manager of the defunct Tampa, Florida-based firm GunnAllen Financial Inc: agreed to pay a $20,000 fine. David Levine, its national sales manager also agreed to pay a $20,000 fine while chief compliance officer Mark Ellis agreed to a $15,000 fine. They did not admit to any wrongdoing.
According to the SEC, Kraus allowed Levine in April 2010 to take information from more than 16,000 accounts to his new firm as GunnAllen wound down its operations. Levine gave the names, addresses, account numbers and values of the accounts to his new firm, National Securities Corp of Boca Raton, Florida.
The SEC's Regulation S-P, known as the "Safeguard Rule," blocks such transfers when customers are not given notice and a chance to opt out” says the SEC. The regulator said that clients were only informed of the transfer of their accounts, after the fact.
The SEC also said that Ellis had failed to take reasonable steps to ensure that GunnAllen’s procedures properly protected customer data. All three also agreed to censures but none admitted any wrongdoing. Between July 2005 and February 2009 GunnAllen had "several serious security breaches" including the theft of three laptop computers, and use of stolen passwords by a fired employee to unlawfully access its email system. However, Ellis failed to revise or change the company’s procedures to safeguard customer data, the SEC said.
This story originally appeared on Securities Technology Monitor.
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