FINRA Fines Rialto Markets $50K for Cybersecurity Failures

The Financial Industry Regulatory Authority announced that it has fined and censured Rialto Markets LLC for failing to maintain adequate cybersecurity controls and supervisory procedures that contributed to a data breach that involved the information of thousands of customers.

According to FINRA, between November 2021 and June 2022, Rialto failed to establish a supervisory system, including written supervisory procedures, known as WSPs, reasonably designed to safeguard customer records and information.

FINRA reported that, while the agency had previously advised Rialto to establish WSPs and systems to mitigate cybersecurity risks, the firm failed to implement critical data loss prevention measures, including multifactor authentication, email audit logs, and alerts for suspicious activity. As a result, beginning in November 2021, an unauthorized user accessed an employee’s business email account and gained unrestricted access to sensitive information belonging to more than 4,400 customers, including Social Security numbers, driver license numbers, and home addresses.

Additionally in February 2022, the unauthorized user used this access to facilitate a fraudulent transfer of more than $1 million from Rialto’s escrow agent to a bank account the unauthorized user controlled. The firm did not detect the breach until after the transfer occurred. FINRA did state that some of the funds were recovered by government authorities, and the escrow agent reimbursed the offering party for the remaining losses.

Upon discovering the breach, Rialto Markets implemented enhanced cybersecurity controls, notified affected customers and regulatory authorities, and offered free credit monitoring.

FINRA said that these oversights are a violation of the Safeguards Rule, which requires firms to ensure the confidentiality of customer records and protect against anticipated threats and unauthorized access; as well as FINRA Rules 3110, which requires firms to establish and maintain a supervisory system; and 2010, which deals with high standards of commercial honor.

Without admitting or denying the findings, Rialto agreed to a censure and a $50,000 fine.

New York-based Rialto Markets provides companies that are looking to raise capital and issue equity and debt securities with an administrative and compliance infrastructure. The firm primarily focuses on private placement offerings.

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