Blotter: March 2011
When The Cat's Away, Mice Will Play
TD Ameritrade settled with the Securities and Exchange Commission over an investigation into its supervision of reps who sold shares of the Reserve Yield Plus Fund. TDA agreed to pay $0.012 per share, or $10 million, to eligible clients who invested in the fund through the firm.
In 2008, the money market fund managed by Reserve Management Co. “broke the buck” when its NAV fell to 97 cents due to the crash of Lehman Brothers and its securities. Prior to the incident, TD Ameritrade's reps sold the fund through a number of channels, characterizing it as a safe investment, similar to cash, or as an investment with guaranteed liquidity, the SEC said. The risks of the fund were also not properly disclosed, regulators said.
Further, while the vehicles were being sold, TD Ameritrade did not properly supervise its reps or prevent the misconduct related to the sale of the funds, the SEC said.
“It is critical that customers get accurate information about investment products, and broker/dealers must provide the training and supervision that enables their representatives to deliver this important guidance,” said Julie Lutz, associate director of the SEC's Denver regional office, in a statement.
In the settlement, TDA did not admit any wrongdoing.
Browser Blunder
FINRA has fined Lincoln Financial Securities and Lincoln Financial Advisors Corporation $450,000 and $150,000, respectively, for failing to protect non-public customer information. FINRA also found that LFS did not require its brokers who work remotely to install the proper security application software.
FINRA alleges that current and former employees had access to customer information through any Internet browser, and that from 2002 to 2009, more than 1 million customer accounts were accessed through the use of shared user names and passwords. While SEC and FINRA require broker-dealers to have policies to safeguard customer information, the two firms did not have these in place and were not able to track how many employees had access to the records during that time, FINRA said.
In addition, the two firms failed to set up procedures for disabling or changing the shared user names and passwords on a regular basis. Even after individuals had left the two firms, the user names and passwords weren't changed, so they still could have had access.
The two firms have notified all customers whose information may have been accessed and offered them credit monitoring and restoration services for one year, FINRA said.
