Three former executives of defunct brokerage GunnAllen Financial Inc. agreed to pay $55,000 to settle government allegations that they failed to protect confidential customer information as the firm was going under.
It is the first time the Securities and Exchange Commission has charged individuals solely with violating rules that require financial firms keep client data from third parties unless customers give their consent, a regulation known as S-P.
In April 2010, as GunnAllen was “winding down,” former president Frederick Kraus permitted former national sales manager David Levine to download client information from 16,000 accounts worth $850 million and authorized him to bring it to any broker dealer he affiliated with, the SEC alleged.
Mr. Levine saved the customer names, addresses, account numbers and asset values to a portable thumb drive before customers were notified that the data was downloaded, the SEC said. He joined National Securities Corp. in Boca Raton, Fla. in May 2010. Mr. Levine’s lawyer Gregg Breitbart said that he still works at National Securities and is pleased that the matter has been resolved.
Customers data was transferred to Mr. Levine without giving clients a chance to opt out, the SEC said.
Mr. Kraus and Mr. Levine each agreed to pay $20,000 fines to settle the charges.
Mark Ellis, GunnAllen's former chief compliance officer, failed to make sure customer information was safeguarded and ignored “red flags” about security breaches, according to the commission's lawyers. From July 2005 to February 2009, three laptop computers that belonged to GunnAllen's brokers were stolen and its e-mail system was accessed by a fired employee using stolen password credentials, the SEC said.
Mr. Ellis agreed to a $15,000 penalty to settle the allegations. His lawyer did not return a call seeking comment.
GunnAllen went out of business in March 2010, facing tens of millions of dollars in legal liabilities after it violated net-capital rules that require all broker-dealers to maintain a debt-to-liquid-asset ratio of no more than 15-to-1.
“Protecting confidential customer information is particularly important when a broker-dealer is winding down operations,” Eric Bustillo, director of the SEC's Miami regional office, said in a statement.
Mr. Breitbart said there are no known instances where the information was misused and noted that no client
Social Security numbers or dates of birth were taken.
Mr. Kraus' lawyer could not be reached.
