Cliff Rudolph's Insurance Blog

Protecting What’s More Valuable Than Money From Cyber-Thieves

An article I wrote on Data Privacy for Credit Union's was recently picked up by the largest Credit Union publication in the nation, CU Times and published today.  It is widely regarded as the paper of record for the credit union industry.

 

Here is a link to the article: Protecting What's More Valuable Than Money From Cyber Thieves

 

The article discusses the criminal indictment of Albert Segvec Gonzalez, who was also the mastermind behind the TJX Breach.  It also discusses the 30 civil lawsuits against Heartland Payment Systems by Financial Institutions, Consumers, and Investors.  More than 650 Institutions were affected by the breach. 

 

Furthermore the article provides some insight on the FTC case alleging Goal Financial did not sufficiently safeguard personal data and the penalties that resulted from that case. 

 

Finally, the article highlights steps that financial institutions can take to insure and mitigate risk.  Insurance products can be designed to pay regulatory fines and penalties, 3rd party lawsuits including member lawsuits, and expenses associated with the data breach including compliance to red flag rules.

 

Cliff Rudolph

Stanford Financial 1.6 Billion Class Action, Your Insurance Broker on your Board of Directors?

Many of you may have heard about the SEC civil complaint alleging a massive ponzi scheme operated by Stanford Financial WSJ Article .  Recently, plaintiffs filed a class action law suit against Willis Group, a UK-based insurance broker, and other defendants. The suit is filed on behalf of defrauded Mexican depositor clients of Houston based Stanford Financial Group and alleges Texas securities law violations by Willis and the co-defendants in the massive investment fraud scheme perpetrated by Stanford Financial Rueters Article.

The latest case is Canabal v. Willis of Colorado et al, U.S. District Court, Northern District of Texas (Dallas), No. 09-01474 and also names Mr. Robert S. Winter.  Mr. Winter is a Bond Specialist with Bowen, Miclette & Britt and was elected to the Board of Directors of Stanford International Bank in 1998.  He was also the primary insurance broker for all policies held by Stanford International Bank and its affiliated companies. 

It is alleged that "safety and soundness" letters from Bowen, Miclette & Britt were signed by Robert Winter without disclosure that Mr Winter was on the Board of Directors for Stanford International Bank news video from fox.  Furthermore, the lawsuit filed in Dallas, states that 'Willis agreed to Stanford's request to provide "safety and soundness" letters, and that "the clear intention" was for the letters to be used in Stanford's marketing to help retain and attract clients." Rueters Article .  These "safety and soundness" letters reportedly were sent to Stanford's agents identifying the insurance policies supposedly underlying Stanford International Bank's operations.  The allegations are that Willis would provide these letters to Stanford, and at times, directly to investors, with the understanding that investors would rely on the letters in deciding whether or not the investment was safe and insured.

I've never understood why Organizations do not see the conflict of interest when having their insurance broker appointed to the Board of Directors.  In many cases, an insurance broker is paid a commission, a percent based on the total premium that the insured organization pays.  Under this model, as the insured organizations exposure grows, so does the insurance brokers compensation.  As you can see, this could result in a conflict of interest.  Furthermore, in the Stanford Case, the broker was sending out letters that investors perceived as an independent assesment of the financial institutions Risk Management.  Obviously this was not the case.

Work with an independent broker that will advocate on your behalf (for that matter, it doesn't make sense to work with a Publicly traded broker in the first place- at a publicly traded firm, who's best interest does your broker have? yours or his shareholders? There is a reason why CPA's and attorney's are not publicly traded, but that is for another blog.).  Insurance Brokers BOD duties should be restricted to Non Profits (where they often know many influential people and are great at fundraising) and to their own firms or associations.  What ever the case, an insurance broker does not belong on the BOD of a client of the firm, whether or not that the insured is an individual client of the broker.

Cliff Rudolph

Bank teller fired for chasing bank robber! Does the FDIC insure against robbery?

As reported in the Seattle Times by Jennifer Sullivan.  A local Seattle bank teller, Jim Nicholson, at Key Bank was recently fired for chasing down a would-be bank robber. 

Termination seems pretty harsh considering Jim not only prevented a bank robbery, but actually held the man down until the police arrived.  Obviously, he may have been injured or injuries to others could have occurred as a result of his actions.  I imagine Key Bank has a standard operating procedure for handling a bank robbery, and Jim did not follow those procedures, putting others at risk.  But I'm still finding it hard to believe that termination was the right move for Key Bank.  Let's keep in mind that regardless of Jim, the would-be bank robber endangered lives when he walked into the bank and demanded money.

I've read many comments from readers about how monies and securities lost due to a robbery are insured through the FDIC.   First, securities are not insured by the FDIC, only deposits.  Currently, savings, checking and other deposit accounts, when combined are generally insured to $250,000 per depositor in each bank or thrift that the FDIC insures.  Secondly, the FDIC does not typically get involved in a bank robbery.  The role of the FDIC is to protect depositors in the event that a bank or thrift were to fail.  You can read more about the FDIC here.

Losses that a financial institution incurs due to a robbery are generally insured by a financial institution bond.  The typical financial institution bond will cover "loss of property resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance, damage to or destruction of... The Definition of Property includes, money, securities, negotiable instruments, certificates of deposit, etc. 

Finally, I can't imagine that Jim will remain terminated by Key Bank for long.  Considering an already tough consumer/financial institution environment this can't be the type of publicity Key Bank is looking for. 

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added 8/4/09:

Lori Matsukawa of KING 5 has done a follow up interview here.

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On 8/5/09 two more Seattle area Key Banks were hit by robberies:

One in W. Seattle: http://westseattleblog.com/blog/?p=19565

Another in Auburn: http://seattletimes.nwsource.com/html/localnews/2009607296_webbankrobbery.html

Cliff Rudolph