GFI Securities to pay $4.3m over inappropriate handling of customer identities
From January 2014 to June 2016, certain representatives on GFI’s equity derivatives desk regularly disclosed customer identities to potential counterparties.
GFI Securities, a broker-dealer owned by BGC Partners L.P., has agreed to pay $4.3 million as a part of a settlement with the United States Securities and Exchange Commission (SEC). The proceedings concern misstatements that GFI made to its customers concerning how its registered representatives handled customer identities in brokering securities transactions.
General industry practice for interdealer brokers like GFI in the equity derivatives marketplace includes preserving the anonymity of a customer’s identity prior to execution of a trade.
GFI publicly represented that it generally maintained the anonymity and confidentiality of customer identities. Further, GFI had written internal policies that generally required its registered representatives to maintain the confidentiality of customer information, including customer identities, but did not adequately inform and train its employees concerning these policies.
From January 2014 to June 2016, at least three of the registered representatives on GFI’s equity derivatives desk regularly provided customer identities to potential counterparties, and other registered representatives on the desk did so on an occasional basis. The registered representatives who engaged in this practice regularly gave customer identifying information to certain customers who were among their own top revenue-generating customers. One such customer received counterparty identities on a near daily basis.
The SEC says that GFI failed to take reasonable steps to inform the registered representatives on its equity derivatives desk and their supervisors of the company’s confidentiality and anonymity policy. GFI distributed documents detailing its internal policy directly to the representatives on its equity derivatives desk and their supervisors on two occasions – once in a March 2006 memorandum and a second time in an April 2016 memorandum.
While the March 2006 memorandum was available to employees on the firm’s intranet, GFI did not provide adequate substantive training concerning the anonymity policy. Thus, annual compliance training materials that GFI used at meetings in 2012, 2013, and 2014 referenced the existence of a “Client Confidentiality Reminder” without referring to anonymity. GFI’s anonymity policy was not mentioned in training materials that were used in online annual compliance courses in 2015 or 2016.
In addition, GFI failed to alert its employees to the public statements that it had made concerning confidentiality and anonymity.
Moreover, the desk supervisors were not aware of their responsibility to enforce the policies or to monitor registered representatives for compliance with the policies.
In or around May 2016, GFI became aware that one of the registered representatives on GFI’s equity derivatives desk disclosed customer identities on a number of occasions. GFI informed the registered representative to stop disclosing customer names in the future, however, this representative, along with other registered representatives on the desk, continued to disclose customer identities on a number of occasions.
During the Relevant Period (January 2014 – June 2016) GFI received commissions based on the successful brokering of trades for customers who were not aware that the registered representatives on GFI’s equity derivatives desk had disclosed their identities to other customers.
The Commission concludes that GFI violated Section 17(a)(2) of the Securities Act, which makes it unlawful for “any person in the offer or sale of any securities . . . directly or indirectly . . . to obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.”
On top of paying a monetary penalty, GFI agrees to cease and desist from committing or causing any violations and any future violations of Section 17(a)(2) of the Securities Act. GFI is also censured.
