In an ongoing investigation, the Securities and Exchange Commission (SEC) has managed to finally reach a settlement with GFI Securities LLC. The cause for the investigation and the lawsuit was due to the firm putting out various misstatements on client anonymity. The civil fiscal penalty that GFI Securities has to pay to the SEC is over 4.3 million dollars.
According to a United States financial regulator’s report, GFI Securities have made several material misstatements towards its clients. Mostly it was about how the company’s staff and representatives maintained client privacy, when it comes to brokering securities transactions.
Who are GFI Securities?
GFI Securities is part of the incorporation of GFI Group Inc, which is based in New York. However, they are registered as a broker-dealer with the SEC. The brokerage firm made a public statement that it commonly maintains the anonymity and does not break client confidentiality.
However, the SEC emphasizes in a document titled “Understanding GFI Brokering Services” that this public statement was mentioned several times. The company published this document on their website and allowed their customers access in January 2016. GFI Securities had similar materials that were available for all the public.
Despite the previous public statements, it was proven that, from the period of 2014 to 2016, there were at least three registered representatives on GFI’s equity derivative desk constantly divulged client identities to potential competition and others also followed through occasionally.
Generally, the SEC found that GFI Securities’ internal policies on this issue were lax and that they didn’t take the suitable steps to notify its registered representatives and their supervisors of the firm’s privacy and anonymity procedure.
According to the United States regulator, GFI Securities did not act in accordance with GFI’s public statements about client identities. Most GFI Securities’ clients believed that GFI’s equity derivatives desk commonly kept their private information, well, private. It was crucial for their clients to be kept anonymous because they were concerned that revealing their identities could unjustly benefit other market players.
For instance, some clients were worried of the possibility that other players could use this private information to block their trades. Furthermore, along with the civil fiscal penalty, the US regulator also announced an order that the GFI “cease and desist” to prevent them from committing or causing any violations of “Section 17(a)(2) of the Securities Act”.
However, GFI Securities has been attempting to make remedial efforts to improve training and to appropriately execute its anonymity policy.