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Morgan Stanley Smith Barney to Pay $35 Million Fine for Failure to Protect 15 Million of Clients Information, Sold Used IT Servers & Hard Drives Which Were Resold on Internet 

22nd September 2022 | Hong Kong

The United States Securities & Exchange Commission (SEC) has fined Morgan Stanley Smith Barney $35 million for failure to protect 15 million of clients information during disposal of IT equipments, selling used IT servers & hard drives containing clients’ information to 3rd party (dating back to 2015).  The IT equipments were then resold including on an internet auction website without removing of clients information.  Morgan Stanley Smith Barney had recovered some of the IT devices, but majority of the IT devices are still not recovered.  United States Director of the SEC’s Enforcement Division Gurbir S. Grewal: “Morgan Stanley Smith Barney’s failures in this case are astonishing. Customers entrust their personal information to financial professionals with the understanding and expectation that it will be protected, and MSSB fell woefully short in doing so.  If not properly safeguarded, this sensitive information can end up in the wrong hands and have disastrous consequences for investors. Today’s action sends a clear message to financial institutions that they must take seriously their obligation to safeguard such data.”

“ Morgan Stanley Smith Barney to Pay $35 Million Fine for Failure to Protect 15 Million of Clients Information, Sold Used IT Servers & Hard Drives Which Were Resold on Internet “

 



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United States SEC Statement

Morgan Stanley Headquarters Time Square Broadway

Morgan Stanley Smith Barney to Pay $35 Million for Extensive Failures to Safeguard Personal Information of Millions of Customers

The Securities and Exchange Commission today announced charges against Morgan Stanley Smith Barney LLC (MSSB) stemming from the firm’s extensive failures, over a five-year period, to protect the personal identifying information, or PII, of approximately 15 million customers. MSSB has agreed to pay a $35 million penalty to settle the SEC charges.

The SEC’s order finds that, as far back as 2015, MSSB failed to properly dispose of devices containing its customers’ PII. On multiple occasions, MSSB hired a moving and storage company with no experience or expertise in data destruction services to decommission thousands of hard drives and servers containing the PII of millions of its customers. Moreover, according to the SEC’s order, over several years, MSSB failed to properly monitor the moving company’s work. The staff’s investigation found that the moving company sold to a third party thousands of MSSB devices including servers and hard drives, some of which contained customer PII, and which were eventually resold on an internet auction site without removal of such customer PII. While MSSB recovered some of the devices, which were shown to contain thousands of pieces of unencrypted customer data, the firm has not recovered the vast majority of the devices.

The SEC’s order also finds that MSSB failed to properly safeguard customer PII and properly dispose of consumer report information when it decommissioned local office and branch servers as part of a broader hardware refresh program. A records reconciliation exercise undertaken by the firm during this decommissioning process revealed that 42 servers, all potentially containing unencrypted customer PII and consumer report information, were missing. Moreover, during this process, MSSB also learned that the local devices being decommissioned had been equipped with encryption capability, but that the firm had failed to activate the encryption software for years.

“MSSB’s failures in this case are astonishing. Customers entrust their personal information to financial professionals with the understanding and expectation that it will be protected, and MSSB fell woefully short in doing so,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division. “If not properly safeguarded, this sensitive information can end up in the wrong hands and have disastrous consequences for investors. Today’s action sends a clear message to financial institutions that they must take seriously their obligation to safeguard such data.”

Without admitting or denying its findings, MSSB consented to the SEC’s order finding that the firm violated the Safeguards and Disposal Rules under Regulation S-P and agreed to pay the aforementioned penalty.

The SEC’s investigation was conducted by Olivia Zach in the SEC’s New York office, and supervised by Celeste Chase and Sanjay Wadhwa.




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