Labor & Employment Law

SEC Victorious in Next Financial Customer Information Case

By Dobin & Jenks

The securities industry, no doubt, has been waiting for the decision in this case for a while. The Securities and Exchange Commission ("SEC") filed an action against NEXT Financial, Inc., an independent broker-dealer firm. The SEC was rightfully unhappy about NEXT's broker transition practices. I've commented on this before, but when you don't work for a brokerage firm and you're accessing that firm's records to enable that firm's broker to transition to your firm, you're doing something wrong. Apparently a few people skipped that class.

An old adage is that "bad cases make bad law." This was a bad case. NEXT had people who would access competitors' computer systems. NEXT had people accessing mutual fund systems using the recruits' user information. And NEXT did nothing to safeguard the information of non-customers on its computer system. The SEC was shooting fish in a barrel.

The Administrative Judge found that NEXT did what the SEC alleged. You can view a copy of the opinion here. It's ugly. Even the proposed changes to Regulation S-P, relating to customer information protection, couldn't help. And now the securities industry is going to have to live with this decision brought about by the overreaching of one of its members.

The lesson here, folks, is don't access other firm's computer systems. Don't take more than you need. And take steps to protect the information you do bring to your new firm.

That's the view from The Law Planet, Jupiter, Florida.

Full post as published by The Law Planet Blog on June 19, 2008 (boomark / email).