Brokerage firms are facing a mounting surge of FINRA arbitration claims and lawsuits for client identity theft and hacking related issues. Brokerage firms and registered investment advisory firms are on notice that hackers and unauthorized third parties are attempting to, and actually being successful, in fraudulently withdrawing funds from investor accounts. In many instances, the brokerage firms can be successfully sued by investors who have had their accounts hacked, their identify stolen or who have had unauthorized sums stolen from their accounts. Our investment fraud law firm has handled these sorts of FINRA arbitration claims in the past and will likely see more of these arbitration claims and lawsuits in the future.
Brokerage firms and RIAs are officially on notice by regulators that they must guard against and supervise to prevent these sorts of ID hacks. Failure to do so can make the firms financially responsible to the investors who were impacted. Unfortunately, these cyber hacks and ID thefts are all too common at brokerage firms. Recently, a Morgan Stanley advisor stole account data from as many as 350,000 clients with some of that information later placed for sale online.
According to a February report issued by the U.S. Securities and Exchange Commission, most of the firms examined by the SEC disclosed they were the subject of a cyber-related incident — 88% of broker-dealers and 74% of RIAs reported they experienced cyber attacks directly or through one or more of their vendors. The majority of the cyber-related incidents involved malware and fraudulent e-mails. Brokerage firms can no longer bury their heads in the sand when it comes to these issues.