Brokers Purging Permanent Record

An eye-opening recent report brings unsettling news that alleged misconduct or fraud by stockbrokers is routinely being erased from the permanent record kept by securities industry watchdog, the Financial Industry Regulatory Association (FINRA). As we’ve written about numerous times, FINRA’s very helpful online searchable database, BrokerCheck, strives to protect investors against shady brokers by collecting comprehensive data on all disciplinary action taken against them. Unfortunately, the usefulness of BrokerCheck is apparently being seriously undermined by the extraordinarily high rate of expungement, according to the report by the Public Investors Arbitration Association (PIABA).

Shockingly, 96.9% of expungement demands by brokers who had allegedly run afoul of FINRA were granted.

The Exception Becomes the Rule in FINRA Expungement

Expungement of customer claims against brokers is intended to be exceptional, offering blameless brokers whose alleged offenses went unproven in arbitration to clean up their records and start fresh. It certainly appears, however, from the findings in this report, that brokers are instead systematically abusing this process and that FINRA is enabling them to do it.

By Alan Cleaver. Creative Commons.

While brokers have every right to eliminate false or fraudulent claims against them and resume their careers, when the process of expungement suffers abuse, it is ordinary investors who lose out the most. Without a complete and accessible accounting of a broker’s past behavior, investors have no way to conduct their own background check on prospective or current stockbrokers. Instead, if they don’t know the broker personally or have a recommendation from a trusted source, they’re forced to rely on the reputation of the broker’s firm or, even worse, what he or she says about their history or past performance.

Investors Have a Right to the Complete Record

Making expungement too easy for brokers not only sends the wrong message to brokers considering crossing the line into misconduct or fraud, it also diminishes an important protection for investors who rely so heavily on strangers (even if they are accredited, well-trained, and professional financial advisors) for investing: the right to complete and accurate information.

If you or someone you know has been the victim of broker misconduct or investment fraud, please contact us immediately for a free consultation at 1-855-462-3330.

Nowhere to Hide for Brokers with a Checkered Past

Slowly but surely, reform and greater accountability is coming to the financial industry. In the aftermath of the financial crisis of 2008-9, the Obama administration promised Americans that it would tighten the grip on a roguish financial industry that put the economic health of the entire country in jeopardy. Although not all that much has happened since, a series of recent amendments and expansions by the SEC and its regulatory body, FINRA (Financial Industry Regulatory Authority), suggests that change, although slow to arrive, is finally on the way. In our previous post, we mentioned proposed amendments to SEC and FINRA rules and regulations that would give them the ability to inflict more financial pain on not just crooked stock brokers but the brokerage firms that sponsor them. Since many brokers who come under fire by FINRA end up going bankrupt, preventing their victims from seeing any rewards even when they win arbitration, holding large brokerage houses with deep pockets accountable increases the chances that victims will get some of the money back--and encourages stricter compliance within the brokerages themselves, in order to avoid future losses.

More recently, the SEC has quietly approved several important amendment to FINRA Rule 8312 which involves the expansion of information provided by FINRA's BrokerCheck. If you haven't checked out BrokerCheck yet, you should. It's an incredibly powerful and useful tool in the fight against broker misconduct, since it makes available to everyone from attorneys and hiring brokerage firms to novice investors information about stock brokers who have run afoul of the regulatory system. Thanks to the recent amendments, there will be more information available about bad stock brokers than ever before. The expansions are described by FINRA in its Regulatory Notice 10-34: 

(1) make publicly available in BrokerCheck all historic customer complaints that became non-reportable after the implementation of Web CRD;

(2) permanently make publicly available in BrokerCheck information about former associated persons of a member firm, as reported to CRD on a uniform registration form if they were (a) convicted of or pled guilty or no contest to certain crimes; (b) subject to a civil injunction involving investment-related activity or found in a civil court to have been involved in a violation of investment-related statutes or regulations; or (c) named as a respondent or defendant in an arbitration or civil litigation in which they were alleged to have committed a sales practice violation, and which resulted in an award or civil judgment against them;

(3) expand the BrokerCheck disclosure period for former associated persons of a member firm to 10 years from two years; and 

(4) codify FINRA’s current process for disputing the accuracy of (or updating) information disclosed through BrokerCheck.

By supplementing the information FINRA already includes in BrokerCheck searches, they are closing the net on brokers whose infractions pre-dated the implementation of Web CRD (the equivalent of badge or serial numbers for brokers, which stay with them wherever they go) and providing more comprehensive records on the relationships between rogue stock brokers and the brokerage firms that hire them. Amendment (3), especially in relation to the increased liability discussed in the post linked to above, harbingers a new era in financial industry regulation where not just individual brokers who can easily take shelter under bankruptcy laws are held accountable for misdeeds, but where major brokerage firms are also effectively on notice that supervision is an absolute necessity and increased liability a new way of life.

These are promising developments for investors who are still feeling the sting of perhaps the second worst economic calamity in our country's history. Change is here.

As always if you or anyone you know has been the victim of broker misconduct or investment fraud, please contact us immediately here or call 1-855-462-3330.

Shine a Bright Light on a Dark Industry

Sunlight is said to be the best disinfectant. As investor advocates, we're all for more transparency and accountability on the part of financial brokerages. That's why we were dismayed by a recent decision by the Financial Regulatory Authority or FINRA to withdraw their proposal, originally filed with the SEC early this year, to make it very easy for investors to conduct background checks and explore the disciplinary history of brokerage firms and brokers. FINRA had been moving forward quickly with a proposal to compel all registered firms and brokers to include direct links on their websites to FINRA's free research and disclosure website called "BrokerCheck." Additionally, FINRA had also hoped to force brokers to feature prominent links to BrokerCheck on any firm-related social media pages. This last aspect of the proposal received the most push-back from financial industry executives, and caused FINRA to climb down and reassess. Brokers who criticized the proposal suggested that although they did not oppose FINRA's plan in principle, they felt that implementing especially the social media aspects would be so challenging as to prevent them from participating in social media at all. Whatever the truth of that claim, FINRA has decided to regroup and refile soon. 

We hope they do. Easy access to BrokerCheck means investors will be able to "check under the hood" of prospective brokers who may claim to be clean and successful but in fact have a tarnished history of multiple complaints against them. We believe that more access and more transparency means fewer incidents of financial misconduct and fraud. This is progress. One of the reasons brokers get away with multiple acts of fraud is that there's no easy way for investors to verify the brokers own claims about him or herself. Where else can you turn to figure out if your broker, who's investing your hard-earned money, is as trustworthy and reliable as he or she or even her firm says they are? BrokerCheck is an incredible resource, and we're eager to have it available as easily and widely as possible. Hopefully, in the very near future FINRA will re-launch its proposal and shine more bright light on an industry with far too many dark corners.

If you or anyone you know has been the victim of broker misconduct or investment advisor fraud, please contact us for a free consultation.

Background check your broker

You work hard for your money. You're diligent about saving for retirement. But when it comes to choosing an investment advisor, are you really being careful enough with your life savings? Do you really know who's managing your money? How do you know they're as reliable as they say they are. Well, the first step you should take before you even think about handing your hard-earned money over to an investment advisor is to use FINRA's BrokerCheck® to make sure you're not dealing with a known crook or fraudster.

The Financial Industry Regulatory Authority (FINRA) is the nation's largest independent regulator of securities firms, and it's BrokerCheck® should be your first stop for pre-qualifying any prospective financial advisor. Through BrokerCheck®, you can now:

• Search for information about brokers and brokerage firms
• Search for information about investment adviser firms and representatives
• Obtain online background reports, if available
• Link to additional resources such as educational tools for investors

Better still, it's really easy to use. All you need is the broker's name and his or her CRD number. If a broker has run afoul of FINRA in the past, you'll find out about it here--and naturally we at The Green Firm urge you to strongly reconsider working with the offending broker, even if you've heard what a rainmaker he or she is!

FINRA is so committed to getting BrokerCheck® out there that it recently filed a proposal to force member firms as well as affiliated brokers to include a link and description of BrokerCheck® on their websites, social media pages, and any other presence on the internet. Pending SEC approval, you should start seeing direct links to BrokerCheck® popping up everywhere on financial websites. We encourage you to use them!

At The Green Firm, our position is and has always been that we want as much public awareness as possible about FINRA's BrokerCheck® because financial advisors rarely if ever advise their clients that they can search their employment background and complaint history--and the bad ones especially don't suggest it.  Most of the clients we've worked with who have been victims of investment fraud or other forms of stock broker mismanagement had no idea that they could background check their broker.

f you or anyone you know has been a victim of investment advisor misconduct, please contact us immediately for a free consultation.