Cybercriminals Assault BrokerDealers; Most BDs Bamboozled by MITB and Phishing Schemes

Posted on by admin

BrokerDealer.com blog update courtesy of extract below from 3 Feb WSJ story by Matthias Rieker

Cybercriminals Attack BrokerDealersMore than half of U.S. brokerage firms surveyed by regulators said they had been targeted by email scams aimed at tricking them into wiring away client money.

In many cases, brokers fell for the impostors and their firms had to reimburse their clients. Of the brokerage firms that received the fraudulent emails, 26% reported losses of more than $5,000, according to the Securities and Exchange Commission.

The SEC last year sampled 106 firms—57 broker-dealers and 49 registered investment advisers—to assess the industry’s cybersecurity risk.

On Tuesday, the regulator said 88% of the broker-dealers and 74% of RIAs it examined for its report had experienced some form of a cyberattack. The agency didn’t say in what years the attacks occurred.

The wealth-advisory industry has long been struggling with what security experts and advisers say has been an onslaught of fraudulent wire-transfer requests, many resulting from client email accounts being hacked. Fifty-four percent of broker-dealers and 43% of RIAs said they had received fraudulent emails seeking to transfer client money.

  • Fifty-four percent of broker-dealers and 43% of advisers said they had received fraudulent emails seeking to transfer client money.

For example, a former Morgan Stanley Smith Barney adviser—whose client’s email had been hacked—wired a total of $521,500 in four requests over two months last year. Also, a former Wells Fargo adviser failed to confirm two wire transfers for a total of $67,532 over two months in 2012 that turned out to be from an impostor.

The Financial Industry Regulatory Authority, Wall Street’s self-regulator, suspended and fined both advisers last month. Neither admitted or denied the allegations, and their firms fired them, according to Finra. Morgan Stanley and Wells Fargo declined to comment on the cases.

Like most firms, Morgan Stanley and Wells Fargo have strict procedures on how to thwart such scammers, but some advisers haven’t been vigilant enough to ensure the requests are actually from their clients. Of the broker-dealers that reported losses from fraudulent emails, a quarter said the losses were the result of employees not following the firms’ authentication procedures, the SEC said.

SEC chairwoman Mary Jo White says assessing the readiness of market participants and providing investors with information on how to better protect online investments from cyberthreats is an important focus of her agency.

Finra said that last year it brought 37 cases related to the improper transfer of investors’ money to third-party accounts.

“Cybersecurity threats know no boundaries,” SEC Chair Mary Jo White said in statement. “That’s why assessing the readiness of market participants and providing investors with information on how to better protect their online investment accounts from cyber threats has been and will continue to be an important focus of the SEC.”

The SEC also said it found that 58% of broker-dealers but only 21% of RIAs are insured against losses from cyberattacks. One broker-dealer and one adviser reported that they had filed claims, the SEC said.

For the full story from the WSJ, please click here

Expert Lawyer Says SEC Broken Windows Approach to Enforcement is Broken

Posted on by admin

Brokerdealer.com blog update courtesy of extracted opinion piece published Dec 22 by Pensions & Investments Magazine and submitted by Andrew Stoltmann, a partner at Chicago-based Stoltmann Law Offices PC, who represents investors in securities litigation and FINRA arbitration claims.

brokenwindows1“..The Securities and Exchange Commission is unfortunately pursuing a fundamentally flawed strategy to police the capital markets and protect investors.

Last year, SEC Chairwoman Mary Jo White disclosed she intends on pursuing a “broken windows” strategy for securities enforcement. The SEC intends on prosecuting even minor violations of the federal securities laws in order to prevent wrongdoers from engaging in even more egregious conduct.

The theory is that when a window is broken and someone fixes it, it is a sign that disorder will not be tolerated. When a broken window is not fixed, it is a signal that no one cares, and so breaking more windows, and more serious crime, will follow. This approach is the one taken in the 1990s by New York City’s then-Mayor Rudy Giuliani and Police Commissioner Bill Bratton back when Ms. White was the U.S. attorney for the Southern District of New York, which includes Manhattan.

Unfortunately, the “broken windows” strategy championed by Ms. White is fundamentally flawed. By going after minor offenses, it artificially inflates the SEC’s enforcement actions and gives the appearance of being tough on bad actors. In reality, it is a mirage. Continue reading →

SEC Wants To See More Transparency from BrokerDealers Trafficking in Bonds

Posted on by admin

SEC Chair Mary Jo White is shifting her aim and gunning for increased pricing visibility and transparency from the Wall Street brokerdealers engaged in providing pricing and trade execution in the $14 trillion dollar secondary marketplace for trading corporate and municipal bonds.

According to the Scott Patterson in his WSJ weekend journal column,  :

European Pressphoto Agency

European Pressphoto Agency

“…To even the playing field, Ms. White suggested requiring public dissemination of the best buy and sell orders generated on private electronic networks for corporate and municipal bonds that are accessed primarily by market insiders.

Currently, investors typically see prices only after a trade is executed.

“This potentially transformative change would broaden access to pricing information that today is available only to select parties,” Ms. White said in a speech at the Economic Club in New York.

The effort comes amid a broader push by Ms. White to erode some of the trading advantages enjoyed by certain large traders that aren’t available to most rank-and-file investors. In a speech two weeks ago, Ms. White vowed to ratchet up oversight of computer-driven trading, a push that could ultimately dull the edge such high-speed traders enjoy.

The bond market initiatives, while still in the planning stage, could deliver a blow to big Wall Street banks that dominate bond trading, while benefiting regular investors who have largely been shut out of the inner workings of the bond market, observers said. Wall Street’s fixed-income businesses already are being buffeted by new rules on capital and risk-taking, and a drop in client trading.

Fund managers who invest in corporate and municipal debt would be among the biggest beneficiaries of the move, because they would have a better idea about how much supply and demand existed in the market for bonds they want to trade…”

For the full story from the WSJ, please click here