| April 2
April 2 Taking too much client data when leaving
one brokerage firm for another can lead to legal disputes for
advisers, although few of those run-ins involve regulators.
But one former manager who worked for a credit union
affiliated with Raymond James Financial Services Inc is
feeling the sting of a $10,000 fine and 10-day suspension.
The Financial Industry Regulatory Authority (FINRA), Wall
Street's industry-funded watchdog, sanctioned Steven Robert
Tomlinson after jeopardizing the privacy of 2,000 customers
whose confidential information he brought to his new firm,
Wachovia Securities, which he joined to manage a branch in
Elmira, New York. The firm is now part of Wells Fargo Advisors,
a unit of Wells Fargo & Co.
Lawsuits and arbitration cases stemming from disputes over
client information are not uncommon. Brokerages often accuse
their ex-brokers and managers of taking client data that belongs
to the firm. Those cases can end with the old firm getting
compensation from the departing employees and the other firm for
lost business. Brokers, in some cases, may not be allowed to
contact their former clients for a certain period, such as a
year. Regulatory sanctions against them, however, are rare, say
FINRA's ruling against Tomlinson, whom regulators say
downloaded details such as account numbers, net worth figures,
and social security numbers - way more information than industry
standards typically allow - is a cautionary tale for brokers and
others switching firms.
"There's no way that FINRA could have allowed this to go
without a sanction because it is behavior that is abnormal,"
said Tom Lewis, a securities lawyer in Lawrenceville, New Jersey
who represents brokers transitioning between firms.
Tomlinson, while planning his move, downloaded information
onto his personal laptop and to a flashdrive that was not
password-protected, according to a FINRA hearing panel decision
on March 21. About 60 percent of the customers whose information
he took were not Tomlinson's, according to the ruling.
He testified that he did not intend to do wrong, but "just
didn't think at the time," according to the ruling. Tomlinson
used only a small portion of the information he downloaded and
for the limited purpose of sending announcements to clients.
Tomlinson's lawyer and a Raymond James spokeswoman declined
to comment. Wells Fargo is aware of the decision and reviewing
the matter, a spokeswoman said in a statement. Tomlinson is
still employed by Wells Fargo, according to regulatory filings.
RULES AT PLAY
Brokers are subject to a range of restrictions about taking
information when switching firms, including brokerage compliance
policies and promises they make in employment contracts.
Brokerages often have two concerns: protecting their turf
from competition and not running afoul of securities industry
privacy regulations that require brokers and their firms to
protect customer information and records.
An industry agreement intended to minimize legal disputes
when advisers switch firms, known as the Protocol for Broker
Recruiting, allows brokers to bring very limited information
when switching firms, provided the two firms participate in the
agreement. Those details typically include client names,
addresses, telephone numbers and email addresses.
Raymond James Financial Services Inc did not participate in
the protocol in 2008, when Tomlinson downloaded the data. Even
so, it is unlikely that he would have incurred the wrath of
regulators if he downloaded only that limited scope of data
about his clients, said Marc Dobin, a securities lawyer in
Jupiter, Florida who represents brokers. At most, his former
firm would have filed a lawsuit or arbitration in an effort to
stop him from using the information, Dobin said.
Tomlinson, however, committed an even more serious
violation: allowing disclosure of a range of clients' personal
information to an outside party without the customers'
permission, according to FINRA. Among his slip-ups: He gave the
flash-drive to a Wachovia assistant, who used it at a computer
in a public reception area at her office.
Wachovia had notified Tomlinson not to bring client social
security numbers and other non-public information from his
Tomlinson, like many advisers, wanted to take information
about clients from his old firm so he could alert them to his
new whereabouts. He acknowledged that he did not need all the
details he took, such as account balances. Much of the
downloading occurred in the days prior to Tomlinson's departure,
sometimes late at night, when it was easier to avoid being
caught, FINRA wrote.
The credit union investigated after learning of a mailing he
sent to a customer. Tomlinson began deleting files when he
learned of the investigation.
His case echoes another in 2010 involving a broker who
downloaded details for about 36,000 customers of a former Bank
of America Corp unit before leaving the firm. FINRA did not buy
the broker's excuse that he downloaded the files in error. It
imposed a 10-day suspension and $10,000 fine. The U.S.
Securities and Exchange Commission upheld the sanctions in
It is unclear whether Tomlinson will appeal the ruling. If
he does not, his ten-day suspension will begin on May 20,
according to FINRA.