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Risk

9/15/2008
11:19 PM
George V. Hulme
George V. Hulme
Commentary
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SEC Fines Wall Street Firm LPL

The Securities and Exchange Commission took -- relatively -- harsh action against financial services firm LPL Financial for failing to protect its customer data. While the fine levied against LPL certainly isn't the most important news to break on Wall Street this week, it is the first step in what I hope is a long-term harsher stance taken by the SEC.

The Securities and Exchange Commission took -- relatively -- harsh action against financial services firm LPL Financial for failing to protect its customer data. While the fine levied against LPL certainly isn't the most important news to break on Wall Street this week, it is the first step in what I hope is a long-term harsher stance taken by the SEC.In the face of the fall of Lehman Brothers, the acquisition of Merrill Lynch by Bank of America, and the fate of the nation's largest insurer AIG hanging in the balance -- the fact that the SEC levied a $275,000 fine against LPL certainly isn't important in comparison. But it does show that the SEC is, fortunately, serious about the Safeguards Rule of Regulation S-P of the federal securities laws. Reg S-P essentially requires that broker-dealers and SEC-registered investment advisers must properly safeguard their customer information.

It's amazing such things need to be regulated, but that's the all-too-sloppy world in which we reside.

Apparently, following an investigation into the hacking of several dozen customer accounts, the SEC found LPL negligent. This is from the SEC statement:

According to the SEC's order, LPL experienced multiple hacking incidents between July 2007 and early 2008, and unauthorized persons gained access to the online trading platform LPL provided for its registered representatives. Once logged onto LPL's trading platform, the perpetrators placed or attempted to place 209 unauthorized securities trades worth more than $700,000 combined in 68 customer accounts.

As a result, LPL has not only agreed to pay the $275,000 penalty, but also:

LPL further agreed to undertake certain remedial actions including retaining an independent consultant to review LPL's policies and procedures required by the Safeguards Rule, and to devise and implement a policy and set of procedures for training its employees and all registered representatives regarding safeguarding customer records and information. LPL consented to the entry of the SEC's order without admitting or denying the SEC's findings.

It's normal, for what it's worth, for companies fined by the SEC to not have to admit to, or deny, the SEC filings. But paying the penalty speaks for itself.

It'd be nice to see even more fines sparked by these security and privacy regulations, such as HIPAA and the Payment Card Industry Data Security Standard. Fines, sanctions, and threat of jail time seems to be the only language too many companies are able to understand.

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