BROKER-DEALER LIABLE FOR SELLING CUSTOMER DATA TO VARIABLE ANNUITY AGENTS
The US District Court for the Northern District of California entered a final judgment against a broker-dealer rep who violated Regulation S-P and the anti-fraud rules by selling customer information to insurance agents as sales leads. The defendant marketed a securities liquidation business to insurance agents whereby the insurance agents would pay the defendant for information about individuals likely to liquidate securities portfolios to buy annuity products. The defendant would receive a price per lead payment or a percentage of the insurance commission. The SEC complaint alleged that the defendant did not disclose the payment relationship.
Our take: Although the SEC alleged violations of Regulation S-P, this looks more like a conflict of interest action. The SEC focused heavily on the defendant’s failure to disclose his relationships with the insurance agents and the revenue sharing. Nevertheless, broker-dealers should remember that customer information is not theirs to sell.