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Broker-Dealer Charged With Deficient Cybersecurity Procedures

Broker-Dealer Charged With Deficient Cybersecurity Procedures

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On September 26, 2018, the Securities and Exchange Commission announced that a Des Moines-based broker-dealer and investment adviser has agreed to pay $1 million to settle charges related to its failures in cybersecurity policies and procedures surrounding a cyber intrusion that compromised personal information of thousands of customers.

The SEC announced that it charged Voya Financial Advisors Inc. (“VFA”) with violating the Safeguards Rule and the Identity Theft Red Flags Rule, which are designed to protect confidential customer information and protect customers from the risk of identity theft.  This is the first SEC enforcement action charging violations of the Identity Theft Red Flags Rule.

According to the SEC’s order, cyber intruders impersonated VFA contractors over a six-day period in 2016 by calling VFA’s support line and requesting that the contractors’ passwords be reset. The intruders used the new passwords to gain access to the personal information of 5,600 VFA customers.

The SEC’s order finds that the intruders then used the customer information to create new online customer profiles and obtain unauthorized access to account documents for three customers.  The order also finds that VFA’s failure to terminate the intruders’ access stemmed from weaknesses in its cybersecurity procedures, some of which had been exposed during prior similar fraudulent activity.  According to the order, VFA also failed to apply its procedures to the systems used by its independent contractors, who make up the largest part of VFA’s workforce.

“Customers entrust both their money and their personal information to their brokers and investment advisers,” said Stephanie Avakian, Co-Director of the SEC Enforcement Division.  “VFA failed in its obligations when its deficiencies made it vulnerable to cyber intruders accessing the confidential information of thousands of its customers.”

Without admitting or denying the SEC’s findings, VFA agreed to be censured and pay a $1 million penalty, and the company will retain an independent consultant to evaluate its policies and procedures for compliance with the Safeguards Rule and Identity Theft Red Flags Rule and related regulations.

Source: SEC.gov

Kehoe Law Firm, P.C.