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Regulatory Sanctions

Broker Pays for Inadvertently Sharing Nonpublic Personal Info

November 27, 2017

by Howard Haykin


An experienced broker, one with an enviable disciplinary history, thought he had crossed all the t’s and dotted all the i’s while grooming his planned successor. He made one inadvertent mistake.


Stephen Salm agreed to $5K fine and a 10-day suspension to settle FINRA charges that he sent emails containing customers’ nonpublic personal information to a non-affiliated third party - a broker at another member firm - without the customers’ knowledge or consent.


BACKGROUND.    Salm, a resident of Carlsbad, CA, has 28 years’ experiences with 7 firms. Since January 2014, he’s been associated with Lombard Securities, serving as a registered rep. He had no prior relevant disciplinary history.


FINRA FINDINGS.    SEC Regulation S-P prohibits member firms from disclosing '*nonpublic personal information” about a customer to a non-affiliated third party unless the customer receives notice and an opportunity to opt out. Information is considered to be “nonpublic personal information" if it contains personally identifiable financial information about one or more consumers, including:


  • information a consumer provides to a broker-dealer to obtain a financial product or service;
  • information about a consumer resulting from any transaction involving a financial product or service between a broker-dealer and a consumer; or,
  • information a broker-dealer otherwise obtains about a consumer in connection with providing a financial product or service to that consumer.


Between July 2015 and January 2016, Salm sent emails containing customers nonpublic personal information to a non-affiliated third party - a broker at another FINRA member firm - without the customers' knowledge or consent. In doing so, Salm apparently caused Lombard Securities to be in violation of Regulation S-P.


Mr. Salm offered the following explaining on FINRA BrokerCheck:


I did violate the privacy rule by inadvertently sharing customer account numbers with my planned successor, who is a financial advisor at another firm, as I was training her and familiarizing her with my clients. Clients were advised that I intended to share their financial information with my planned successor and were given the opportunity to withhold their permission for this. No one withheld their permission.


FINANCIALISH TAKE AWAYS.    Lombard Securities, a Baltimore, MD-based broker-dealer with a relatively clean disciplinary history, maintains a nationwide independent broker network. That would explain why Mr. Salm was able to transition his client base to a financial adviser at another firm – without apparently “ruffling the feathers” of his broker-dealer. And he's still associated with that firm.


That said, Mr. Salm’s planned succession, along with those contemplated by other indie brokers, involve a lot of moving parts. And they’re fraught with a lot of rules and regulations, which can trip up the most cautious of brokers. So, while Mr. Salm was hit with relatively minor sanctions, he still incurred financial and (perhaps) reputational costs, which might have been avoided had he perhaps worked (more closely) with compliance officers at Lombard Securities.


As such, this case offers practical advice to any financial advisors who plan similar moves within the framework of an independent broker network. LEARN FROM OTHERS' MISTAKES.


This case was reported in FINRA Disciplinary Actions for October 2017.

For details on this case, go to ...  FINRA Disciplinary Actions Online, and refer to Case #2016047661701.