Morgan Stanley Loses CDs Containing Personal Data for 34,000 Investors

Brokerage firm Morgan Stanley Smith Barney reported that personal information belonging to 34,000 investment clients has been lost and potentially stolen. Unlike recent data breaches, the data appear to have been lost in the mail.

The company mailed two CDs containing information for 34,000 clients to the New York State Department of Taxation and Finance, Jim Wiggins, a Morgan Stanley Smith Barney spokesman told Credit.com July 6. While the package appeared intact when it reached the department, the CDs were missing when the intended recipient received it.

Morgan Stanley was notified June 8 that the CDs were missing and the company conducted an “exhaustive search” of all the facilities the package passed through. After failing to find them, it mailed letters to clients June 24.

The CD contained personal identifying information, including clients’ names, addresses, account and tax identification numbers, income earned on investments in 2010 and Social Security numbers, the company said. The information was mailed to the state because it requires account information for investors of tax-exempt bonds and funds after annual 1099 tax forms are filed, Morgan Stanley said in its letter to customers.

Morgan Stanley has yet to see any evidence of criminal intent or misuse of the missing information. Even so, the company will offer a year of credit-monitoring services with Experian for clients whose Social Security numbers were compromised.

“In 2011 breach sightings have rapidly evolved from the Flavor of the Month, to news reel of the week, to ‘News at Eleven,’” wrote Adam Levin, co-founder and chairman of Identity Theft 911 and Credit.com.

Levin questioned whether Morgan Stanley regarded information security as a priority, considering that the CDs were password-protected but not encrypted. It’s not clear whether it’s standard procedure at Morgan Stanley Smith Barney not to encrypt data or whether the New York State Tax Department lacks the technology to decrypt secured data, Levin said.

"Anybody can break a password. The question is: Why wasn't it encrypted?" Levin said.

It is also unclear why CD-ROMs were used to transmit the data in the first place, Levin said, noting that if this was part of routine reporting done every year, it would have made more sense to have a secure communications link between the sender and recipient.

"We're examining with the state of New York how we can increase the security of this kind of data transmission," Wiggins told Credit.com

Incidents in which data like Social Security numbers, birth dates and addresses are stolen are a bit riskier than when credit card numbers and account numbers are stolen, according to Eduard Goodman, chief privacy officer of Identity Theft 911. While banks can shut down accounts and reissue new numbers, Social Security numbers have a “long shelf life,” and can be used to spawn dozens of new accounts and are often traded internationally among organized criminals, Goodman said.

“The potential damage to your good name is greater,” Goodman said. Users should exercise good data-management, such as shredding sensitive documents before throwing them away, using a locking mailbox and reviewing free credit reports every year to protect against potential identity theft, he said.

“What this letter really says is that after all the coverage of all of the breaches, all the horror stories, all the misery, all the litigation, all the heroic pronouncements by all the regulators, legislators, corporate leaders and consumer advocates, the memo still didn’t get to Wall Street, where they obviously care more about intellectual property, trade secrets, inside trading, outsized profits and complaining about over-regulation than their most precious asset: their customers,” Levin said.