Real Estate Broker Fined $35,000 for Data Protection Failures

Last month the Federal Trade Commission finalized a $35,000 settlement with Gregory Navone, a small real estate broker who threw 40 boxes of customer tax returns, bank statements, consumer reports and other financial records into a dumpster located behind an office building in Las Vegas.   Despite what the ads say, this just goes to show you that what happens in Vegas doesn't always stay in Vegas.

In resolving this complaint, Navone agreed to the fine (approximately $875 per box) and committed to adopting a comprehensive "written information security program."  For those of you who read our last article on the Massachusetts Data Protection Regulations going into effect on March 1, this should sound really familiar.

There's a lot more to learn from this case, however, than simply noting we shouldn't be as foolish in our dumpster habits as was Navone.   The FTC's investigation of Navone extended deep into his business operations, uncovering many additional violations of the law:

  • he failed to implement physical and electronic security procedures over sensitive customer data, and
  • he failed to take reasonable steps to secure customer records stored  in his home's garage.

Once again, readers of our last article should easily recognize the similarities with the latest Massachusetts regulations.  Although Navone's problems arose under several federal regulations (the FTC and Federal Credit Reporting Acts), the requirements are very similar.  It's also especially interesting  that the FTC's claims also encompassed Navone's failure to comply with his own customer policies, which read in part:

We take our responsibility to protect the privacy and confidentiality of customer information very seriously. We maintain physical, electronic, and procedural safeguards that comply with federal standards to store and secure information about you from unauthorized access, alteration and destruction.

If I were in Vegas right now, I'd consider it pretty safe to bet that Massachusetts regulators will take a similar approach with the enforcement of its laws.  Navone either consciously ignored his obligations under the law, or believed he was such a small operator that his lack of compliance would never be discovered.  Like so many who gamble in Vegas, he lost.

If you're operating a business in Massachusetts, I encourage you to avoid acting like Navone - especially if you can't afford to lose $35,000 or more (plus the cost of hiring an attorney)  in making your bet.

Jack Speranza is an attorney, software engineer and entrepreneur.   For 15 years he has helped his companies and clients strike the right balance between risk and reward by weaving good business, good technology and good law into new services and operations.

A $5,000+ Question (If You’re Doing Business with Massachusetts Residents)

Massachusetts Data Privacy Regulations are in effect March 1, 2010By March 1, 2010, businesses and organizations that store "personal information" about a Massachusetts resident must have minimum safeguards in place or face a minimum fine of $5,000 regardless of whether or not that information is ever compromised.  Enacted in the wake of major data breaches (starting with the TJX debacle a little over a year ago), the state of Massachusetts has sent clear signals that it expects all businesses (large and small) to take personal privacy and data protection seriously.  Word on the street is that early enforcement will be vigorous, and examples will be set.  So if you're a smaller business who thinks you'll be able to fly under the radar, you might want to re-think your position (unless you're ready to fork over $5,000 or more should you lose your "bet").  So, in the interest of helping our friends on Main Street avoid any problems, here's a quick run-down on what's involved:

what information is covered under this law?

The law and regulations are pretty far-reaching both in terms of the information to which they relate and the organizations that must comply. The personal information at stake is any non-public data (regardless of how a company obtains it) that contains:

  1. A Massachusetts resident's first and last name or an initial with last name; and
  2. Either
    (a) Social Security Number;
    (b) Driver's license number/state-issued identification card number; or
    (c) financial account number/credit card number/debit card number (even if without any security code, access code, PIN or password).

There's a couple of things that should jump out at you.  First, if you have any employees (full-time, part-time, seasonal) you're holding this data.  Second, how you came into possession of this information is irrelevant to your obligation to now property safeguard it under the law.

what individuals and organizations have to comply with the law?

Everyone.  It doesn't matter if you're an single individual or a company that has 2 employees or 10,000.  It doesn't matter if you're for-profit or non-profit.  It doesn't matter if you're located in Massachusetts or California (OK, that last one would necessitate an interesting analysis over jurisdiction, but in most cases you're probably still on the hook).  Have I made it clear there are no exceptions?

OK, so what do we have to do?

It's not all bad news.  Some things you may already be doing, and you just have to do a better job of spelling them out.  Other things will be completely new.  Here's a quick run-down:

  1. No matter how many safeguards are in place, you won't be in compliance with the law unless you create and implement a written information security program (otherwise known as a "WISP").   This program must define the various safeguards you put in place (administrative, technical, and physical) to protect the personal data of employees and customers.   The technical requirements that must make their way into your WISP can get pretty detailed, so unless you're a technology whiz, this is one aspect of the program you'll probably want to outsource.
  2. Once your written program is in place, you can't stop there.  All employees need to be made aware of the written program.  At least one employee must be designated to maintain and oversee it.  Ongoing employee training (including temporary and contract employees) is a clear requirement, and you must also demonstrate ongoing enforcement of security policies for employees (including determining individual levels of access), imposing disciplinary measures for violations of the rules.  You must also assure terminated employees are prevented from gaining access to protected information.
  3. Your obligations don't stop in-house.  You must verify that any third-party service providers to whom you provide access to personal information are also applying  protective safeguards of their own.  This may involve assuring appropriate language is inserted into your written agreements or obtaining some other form of appropriate written assurance.
  4. Now here's some news that's both good and bad.  The specific measures you need to implement in order to be in compliance will vary on a case by case basis.  It all ultimately hinges upon the nature of the business and the type of data involved.  Although there are no clear guidelines or directives as to what constitutes "reasonable" measures, this is another instance where outside assistance can be a real help.  Though the regulations don't specifically provide for this, there's plenty of Massachusetts case law suggesting that reasonable reliance on outside experts will relieve you of liability that might otherwise attach.

what's at stake if we don't comply?

The regulations will be enforced by the Massachusetts Attorney General.   Organizations not in compliance are subject to: (1) a lawsuit to prevent you from continuing to operate in violation of the law; (2) a fine payable to the state of up to $5,000 per "method, act or practice" the business knew or should have known violated the regulations; and (3) the imposition of costs associated with any litigation, including reasonable attorney's fees.  And if your organization actually suffers a data breach?  Well, the sky's the limit...

I now interrupt this article to to bring you a shameless plug.   Main Street Ventures is uniquely positioned to assist your company with creating and implementing your "WISP."   For years we have been working at the intersection of business, law and technology.  Our expertise has allowed us to develop a very cost-effective program for Main Street businesses consisting of an audit of your operations, relationships with 3rd party providers, and technology systems.  For most businesses, we should be able to create a comprehensive WISP and help you implement it for under $750.  A small price to pay compared to an exposure of $5,000 or more under the law.

If you're comfortable handling this in-house, we're happy to answer any questions for you (no charge - within reason, of course).  Feel free to comment below or give us a call.

Jack Speranza is an attorney, software engineer and entrepreneur.   For 15 years he has helped his companies and clients strike the right balance between risk and reward by weaving good business, good technology and good law into new services and operations.

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