FINRA Has a Facebook Data Breach Problem; Whistleblower

Posted on March 27, 2018 by admin

FINRA, other regulators mishandled brokerage account data. Just like Facebook, Inc.!

If you’ve been on another planet during the past two weeks, Facebook Inc (NASDAQ:FB) reported that the company’s data network was hijacked by a “political intelligence” firm posing as an academic researcher and used captured data of 50 million Facebook users to launch a Trump-friendly advertising campaign in the weeks and days leading up to the 2016 Presidential election. We know how that worked out. Well, according to a whistleblower, it appears that US securities industry self regulator FINRA left its back door wide open too.

Per Bloomberg reporting, “..A whistleblower is accusing some key financial regulators of allowing sensitive broker information to become readily accessible, even as industry watchdogs emphasized the need for companies to protect client data.

According to a complaint lodged with the SEC, personal data such as brokerage account numbers provided to an industry-funded regulator have long been easily accessible online. Separately, Social Security numbers and other information meant to be kept private also was made publicly accessible by state regulators for years up until 2015, according to the complaint, which was reviewed by Bloomberg News.

At issue is material on brokers and their firms gathered by FINRA and other regulators to help clients keep tabs on the people handling their money. To spot potential red flags, the SEC encourages investors to search the data that’s housed in the sprawling Central Registration Depository of more than 3,700 broker-dealers and hundreds of thousands of people authorized to work in the securities industry.

Some of that information, which is used in FINRA’s BrokerCheck online portal and passed on to state authorities, has been mishandled, said the whistle-blower who asked not to be identified in discussing the allegations for fear of reprisals.

While both FINRA and the North American Securities Administrators Association acknowledged past problems in a response to questions from Bloomberg News, they dispute any contention that they’ve been negligent in efforts to clean-up the disclosures.

The issues shed light on the massive back-office systems maintained by regulators and the difficulty of keeping the sensitive information in them private. There is so much data that FINRA has a team of more than 30 people who review filings and runs hundreds of automated queries to look for information that shouldn’t be made public.

“They’re sitting on top of an even larger amount of private data than the firms they regulate,” said Donald Langevoort, a professor at Georgetown University Law Center in Washington. “There is an immense amount of cynicism about the ability of any institution public or private to do a good job at safeguarding privacy.”

Concern over financial regulators’ ability to safeguard data led to congressional hearings last year after the SEC revealed that hackers broke into its corporate filing system and accessed two people’s names, dates of birth and Social Security numbers. That disclosure followed a massive breach at Equifax that may have led to the theft of personal data on about 150 million Americans.

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Morgan Stanley Hit With $20mil Whistleblower Suit

Posted on August 28, 2015August 28, 2015 by admin

Two ex-brokers hit brokerdealer Morgan Stanley with a $20 million lawsuit this week, alleging that they were fired in retaliation for complaining about improper practices and violations of securities law at the wirehouse, according to news from BankInvestmentConsultant.com.

In a news story filed Aug 27, Jamie Feldman-Boland and her husband, John Boland, say that they witnessed trainees and interns entering in trades on behalf of advisors, and presumably doing so with brokers’ access codes in violation of the broker-dealer firm’s policy.

Other misconduct they say witnessed: an advisor trying to improperly get an insurance commission; cancelling a business deal worth $200 million to punish Feldman; and harassment of Feldman by another advisor and her branch manager.

Morgan denies the allegations.

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“These former financial advisor trainees have filed numerous unsubstantiated claims since their terminations in 2011. To date, none have been found to have any merit. We believe this latest claim is equally without merit and will be dismissed,” a Morgan spokeswoman said.

Alice Keeney Jump, an attorney at law firm Reavis Parent Lehrer who is representing the Feldman and Boland, rebutted Morgan’s argument, saying that the couple’s allegations are straightforward.

“I disagree any arbitration panel has settled these claims,” Jump says.

She adds, “My clients are fully confident in the truth of their allegations and have decided to pursue their rights.”

COLD CALLS

Feldman, 38, joined Morgan in 2008 after four years at Merrill Lynch, according to Finra’s BrokerCheck. Boland followed her to the firm in 2010 while the two were engaged, according to the complaint, which also stated that Morgan knew of their relationship.

When she joined the firm at its Midtown office in New York, she was part of a joint production agreement with two other advisors, according to the complaint. Her partner for high-net-worth clients, Michael Silverstein, had more than thirty years of industry experience, according to FINRA records.

According to the complaint, Silverstein did not devote time to meeting with or serving prospective clients that Feldman brought in, which in turn hurt her production numbers at the firm. Feldman alleges that by January 2011 she had presented clients with more than $100 million in assets to Silverstein, but he failed to prepare any investment portfolios.

In their complaint, Feldman and Boland also allege that trainees and interns cold-called Pfizer and Verizon employees close to retirement to urge them to roll-over their 401(k)s to Morgan Stanley, guaranteeing them a 15% return, according to the complaint.

The investments were in fact in closed-end mutual funds which experienced sharp fluctuations in net value, according to the complaint.

In April 2011, Feldman went to her branch manager to complain about these and other violations she had witnessed. The manager, David Turetzky, told her to leave his office, and later asked for a list of her clients, according to the complaint.

The following month, Turetzky called Feldman into his office to tell her that the firm would not pursue “at this time” a $200 million commodities deal that one of her clients wanted, according to the complaint.

Feldman alleges this was retaliation for her earlier complaints as well as a confrontation with Silverstein, who tried to claim that he was in fact the introducing broker and therefore entitled to the fees and commissions.

For the full story: click here

BrokerDealer WhistleBlowers Beware: Arbitration is a Double-Edged Sword

Posted on August 31, 2014 by admin

BrokerDealer.com blog update re the Finra arbitration process is courtesy of extract from 31 Aug New York Times story by Gretchen Morgenson

Five years ago, Sean Martin, a registered representative at Deutsche Bank Securities in New York, saw something troubling on his trading desk.

A few of his colleagues, he said, were letting preferred hedge fund clients listen in on confidential market commentary by the firm’s analysts before their views were made public. He alerted his superiors and was almost immediately given a negative review, a first in more than 10 years at the firm, he said. His bosses also removed him from the group he’d been working with and cut his compensation.

Mr. Martin, who continues to work at Deutsche Bank, said he believed that he was being punished for reporting misconduct and took the one avenue of redress that was open to him. In August 2012, he brought an arbitration case against the firm, contending retaliation and asking to recover his lost earnings. As is typical in the financial industry, his employment contract required that any dispute between him and his employer go through private arbitration, not the courts. Mr. Martin’s matter is being heard by three arbitrators associated with the Financial Industry Regulatory Authority, a self-regulatory organization that operates the largest dispute resolution forum in the securities industry.

But Mr. Martin’s experience with arbitration, both he and his lawyer say, has raised questions of fairness in the process. The three-member panel hearing his case has barred him from testifying about certain crucial aspects of what he saw at Deutsche Bank and disallowed the introduction of documents that bolster his claims. This led his lawyer to conclude that the panel was not interested in specifics of the behavior at the heart of his accusations — and to ask a state court to step in.

“When I filed this arbitration, I expected that Finra would resolve the dispute between Deutsche Bank and me in a fair way,” Mr. Martin, 41, said in a statement provided by his lawyer. “I was surprised and disappointed when the arbitrators refused to listen to important parts of what I wanted to say and rejected or redacted my exhibits. I can’t see how a dispute can be fairly resolved if one party is not even allowed to tell their side.”

To continue reading the entirety of the NY Times article, click on this link