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Mathew J. Schwartz, InformationWeek
Mathew J. Schwartz, InformationWeek
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Anatomy Of A Brokerage IT Meltdown

Regulators last year issued the SEC's first-ever privacy fine against broker-dealer GunnAllen for failing to protect customer data. But former IT staffers say regulators didn’t seem to know half of this cautionary tale of outsourcing and oversight gone wrong.

The network slowdown was one of the first clues that something was amiss at GunnAllen Financial, a now defunct broker-dealer whose IT problems were only a symptom of widespread mismanagement and deeper misconduct at the firm.

It was the spring of 2005. Over a period of roughly seven business days, traffic had slowed to a crawl at the Tampa, Fla.-based firm, which had outsourced its IT department to The Revere Group. GunnAllen's acting CIO, a Revere Group partner, asked a member of the IT team to investigate.

Dan Saccavino, a former Revere Group employee who at the time served at GunnAllen as the IT manager in charge of the help desk, laptops, and desktops, says he and another network engineer eventually pinpointed the cause of the slowdown: A senior network engineer had disabled the company's WatchGuard firewalls and routed all of the broker-dealer's IP traffic--including trades and VoIP calls--through his home cable modem. As a result, none of the company's trades, emails, or phone calls were being archived, in violation of Securities and Exchange Commission regulations.



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