The Financial Industry Regulatory Authority has fined Securities America $125,000 for purportedly helping 12 recruited brokers take nonpublic personal customer information from their former firms and disclose it to a third-party vendor that assisted the representatives with their transition, without the other broker-dealers’ or the customers’ knowledge or consent.
Securities America, a wealth management firm within the Advisor Group network, was part of Ladenburg Thalmann until last year when the firm merged with Advisor Group. Securities America is headquartered in Nebraska and has approximately 4,170 registered representatives and 2,440 branch offices.
According to a letter of acceptance, waiver and consent issued by FINRA, the alleged violations occurred between November 2018 and September 2019.
FINRA claims that Securities America violated the Securities and Exchange Commission’s Regulation S-P, which prohibits financial institutions from disclosing nonpublic personal information about a customer without proper notice and an opportunity to opt out.
A violation of Regulation S-P is also a violation of FINRA Rule 2010, which requires firms and their associates to observe high standards of commercial honor.
FINRA said that Securities America contracted with a third-party vendor to provide assistance to recruited representatives who had agreed to join the firm but were still registered through their prior firms.
The vendor was tasked with collecting information about the representatives’ customers, including social security numbers, driver’s license numbers, and birth dates, as well as information pertaining to their financial position such as account numbers, annual incomes, and net worth.
Securities America employees reportedly arranged and participated in conference calls between the vendor and the recruited representatives, and once they became registered through Securities America, the vendor used the customers’ information to automatically pre-populate new account forms.
The 12 representatives joined Securities America from other broker-dealers whose privacy policies did not authorize customer information to be disclosed to a non-affiliated third party if the representative joined a new broker-dealer, FINRA said.
“Securities America knew that these broker-dealers’ privacy policies did not authorize the disclosure of customers’ nonpublic personal information,” FINRA stated in the AWC letter. “But, despite knowing that, Securities America introduced these 12 recruited representatives to the third-party vendor so that their customers’ nonpublic personal information could be collected. Securities America also knew that these representatives thereafter, in fact, took nonpublic personal customer information from their broker-dealers and disclosed it to the vendor.”
FINRA indicated that Securities America’s arrangement with the vendor resulted in these 12 recruited representatives taking nonpublic customer information from their broker-dealers, causing the other broker-dealers to also violate Regulation S-P.
Securities America accepted the sanctions without admitting or denying the findings.