FINRA Suspends Broker for Removing Confidential Client and Firm Information
Commentary by Steven Lofchie
FINRA suspended a broker for removing and transferring confidential and proprietary firm information when he left to join a competing firm.
According to the AWC, while employed in the firm’s Fixed Income Institutional Sales Division, the broker sent 37 unencrypted emails to his personal account containing financial data, contact lists, marketing materials, and transaction details. FINRA found that the broker also emailed himself confidential underwriting documents that were subject to a non-disclosure agreement and a client list labeled "Christmas List." FINRA further found that the broker printed and retained confidential firm materials, including internal presentations, customer notes, and deal data, further noting that his printing activity increased significantly in the days before his departure.
FINRA said the broker and another representative subsequently resigned to join another firm, where they continued selling fixed income securities to many of the same institutional clients. FINRA determined that shortly after joining the new firm, the broker accessed and shared the confidential materials he had removed, including client contact lists and detailed trade records using the new firm’s email system.
FINRA highlighted that the former firm had policies prohibiting associates from transferring confidential information outside the firm or emailing such information to personal accounts without written authorization and required the immediate return of all confidential materials upon departure. FINRA stated that the broker acknowledged these obligations through ethics training, compliance attestations, and an employment agreement that also required encryption for transmitting sensitive data. FINRA concluded that the broker’s conduct—transferring client data to a personal email account, retaining confidential materials, and transmitting sensitive information without encryption—violated firm policies and internal compliance standards.
FINRA determined that the broker violated FINRA Rule 2010 ("Standards of Commercial Honor and Principles of Trade").
The broker consented to (i) a one-month suspension from associating with any FINRA member in all capacities and (ii) a $5,000 fine.
Commentary
This is yet another example of an absence of any relationship between the seriousness of the misconduct of an individual broker and the severity of a penalty. See here for a recent case in which an individual broker, who charged less than $5,000 of personal credit card expenses to his employer, was fined $5,000 and received a six month suspension. The individual in the instant case removed and transferred information that was almost certainly worth more than $5,000 and violated customer confidentiality, but received a similar $5,000 fine, with only a one month suspension.