SEC Upholds FINRA Action against Switching Broker Who Took Client Info
The SEC has upheld a FINRA action against a registered representative charged with unlawful taking of client information when switching broker-dealers. FINRA found that the respondent violated his â€œduty to observe high standards of commercial honor and just and equitable principles of tradeâ€ (Conduct Rule 2110) by downloading customer information for use at his new firm. FINRA charged that the taking of the information violated his old firmâ€™s policies as well as Regulation S-P. SEC rejected several arguments made by the respondent: (i) the 2004 â€œProtocol for Broker Recruitingâ€ did not give rights to an individual representative to take confidential client information; (ii) his lack of knowledge or bad intent was not relevant nor was lack of any client harm, and (iii) he had no property right to the client data. The SEC also indicated that focusing on his own self-interest without regard to his clientâ€™s rights violated Rule 2110.
OUR TAKE: In the absence of any other agreement, as between a firm and an individual broker, client data belongs to the firm. A registered representative cannot utilize client data without the consent of both the firm and the clients. Also, brokers should note the SECâ€™s emphasis on client interests over the brokerâ€™s self-interest, the hallmark of a fiduciary duty.