On June 16, 2014, the Financial Industry Regulatory Authority, Inc. (“FINRA”) Department of Enforcement issued a Letter of Acceptance, Waiver and Consent (“AWC”) regarding Dudley Franklin Stephens, a registered representative. Pursuant to the AWC, Stephens began working in January 2000 as a General Securities Representative and Principal through association with multiple FINRA member firms. From January 11, 2011 through May 3, 2013, Stephens was associated with HSBC Securities (USA) Inc. (“HSBC”). The AWC concerned Stephen’s removal and use of confidential and proprietary HSBC customer information without authorization. The AWC states, “Stephens took the information with him when he left his employment at HSBC to assist him in opening customer accounts at his new employing broker-dealer. Stephens failed to observe high standards of commercial honor and just and equitable principles of trade in violation of FINRA Rule 2010.” Specifically, Stephens was accused of printing a spreadsheet which contained customer names, account numbers, social security numbers, addresses and other information for approximately 308 customers. Interesting the FINRA AWC states that pursuant to Regulation S-P of the Securities Exchange Act of 1934, that information constituted nonpublic personal information; however the AWC makes no distinction between the client list and the taking of the list with account numbers and social security numbers. FINRA has not taken the position that Protocol compliant lists are Confidential Information under Reg. S-P so this case demonstrates that departing from the strict limitations of the Protocol can result in not only litigation by the firm a registered representatives departs, but also serious regulatory actions. This FINRA action highlights the need for registered representatives to hire experienced counsel prior to making any move between firms.
Unfortunately for what many would view as a minor breach, Stephens had to settle with FINRA and accept that he had violated FINRA Rule 2010, which requires associated persons and registered representatives, in their conduct of business, to observe high standards of commercial honor and just and equitable principles of trade. Stephens agreed to a suspension from association with any FINRA member for ten (10) business days and a $5,000 fine. Notably he is no longer with Wells Fargo the firm that had hired him, probably as a result of this matter.
Lax & Neville LLP has nationally represented small broker-dealers, financial services professionals and securities industry companies in regulatory matters, including regulatory enforcement proceedings, and securities-related and commercial litigation. Further, Lax & Neville LLP has extensive experience representing financial services professionals during their resignation and/or transition. Please contact our team of attorneys for a consultation at (212) 696-1999.