According to a Public Investors Arbitration Bar Association study, the Financial Industry Regulatory Authority “routinely” erases certain red flags in the records of brokers from its online BrokerCheck resource—the same tool that it tells investors to go to check on the history of financial representatives. The PIABA study looked at data about brokers found on FINRA’s BrokerCheck and compared it to other reports on the same reps, also from FINRA’s database but accessible in states that have strong freedom of information laws.
The group found that warning indicators pertaining to tests flunked by a broker, investigations into possible sales abuses involving securities, internal reviews for fraud, or regulation and rule violations could be accessed through the states but no longer through FINRA. PIABA says that other red flags that the SRO has deleted from BrokerCheck include failed qualifications tests, personal bankruptcy filings older than 10 years, and federal tax liens that have since been satisfied.
BrokerCheck is a database accessible to the public. It includes information about brokers, including their 10-year employment history, disciplinary actions, felony convictions and charges, and any related judicial and civil cases, customer complaints, and arbitration matters. According to InvestmentNews, the regulator has tried to raise disclosure levels even as it work fine a balance between giving investors the information they should know and protecting the privacy of advisors. In June, a new rule will go into effect mandating that BrokerCheck include disclosures for brokers who had settled with states over civil actions.
Also, The Wall Street Journal is reporting, based on its own analysis, that the records of over 1,600 brokers don’t reveal bankruptcy filings, regulation violations, and criminal charges, and regulators don’t seem to detect these omissions. According to The Journal, these brokers are typically the same individuals who have numerous disciplinary actions and customer complaints against them. Findings were compiled from looking at a unique database with information on about more than 500,000 brokers in 21 states. The data was compared to the information found in bankruptcy and criminal court proceedings.
Please contact our stockbroker fraud lawyers today. We can help you explore your legal options. Your initial case consultation with Shepherd Smith Edwards and Kantas, LTD LLP is free.
Regulator Deletes Red Flags From Brokers' Records, Says Study, The Wall Street Journal, March 6, 2014
Finra's BrokerCheck comes under fire, Investment News, March 6, 2014
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