finra regulatory notice

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.

FINRA's Monthly Blacklist

We don't know about you, but seeing the unjust finally get their due always gives us a boost. hat's in part why we look forward to the release of FINRA's monthly "Disciplinary and Other FINRA Actions" report. This is just what it sounds like, a listing of all the sanctions, fines, suspensions, and other disciplinary actions that have handed down by FINRA against the iniquitous brokers, investment advisors, and brokerage firms who have dis-served or manipulated their customers in so many different ways. It's a long report, but what stood out to us is the recurring appearance of firms who have mishandled private placements in flagrant disregard for FINRA's warnings over the past few years that they would be cracking down on private placements (see 2010 and 2011 "Annual Regulatory and Examination Priorities Letters" as well as Regulatory Notice NTM 10-22 in April 2010.) FINRA was not kidding. Janco Partners, Lincoln Financial, Roth Capital Partners, and the Tidal Group--to name a few--have all suffered penalties as a result of failures to fulfill their obligations related to private placements. If you're not sure or need a refresher on what a private placement is, here's Wikipedia on the subject:

Preview of “Private placement - Wiki..., the free encyclopedia” copy.jpg

Also worth noting in the report is the fact that KMS Financial Services was punished for failing to do its due diligence before letting its broker-dealers sell shares in a dubious hedge fund. Bad on them. FINRA warned you! According to Regulatory Notice 10-22, if a firm knows about a private placement offering, they are required to conduct due diligence to make sure the private placement is suitable for its customers before investing. 

Finally, FINRA also provides listings for individual brokers who have been suspended. It's a long list (see page 17). If you've ever had it in the back of your mind that your broker-dealer ripped you off, why not see if he or she made the list... And then contact us.