Stockbrokers Dishonesty about Potential Red Flags

A Wall Street Journal analysis shows more than 1,600 stockbrokers have bankruptcies or criminal charges in their past that weren’t reported. Brokers and the firms that employ them are required to report these issues to the regulatory body commonly called FINRA. Investors can look up brokers on a FINRA website called “BrokerCheck” and discover a broker’s professional history. The Securities and Exchange Commission, oversees the Wall Street self-regulator, has said in rulings on disciplinary proceedings that FINRA, “must depend on its members to report to it accurately” because its membership of over 4,000 firms and 635,000 brokers means it “cannot investigate the veracity of every detail in each document filed with it.”

FINRA, the “first line of defense” to protect investors, can impose penalties including fines and exclusion from the industry for reporting failures. Last year FINRA took disciplinary action against 129 brokers and firms for “reporting and filing violations.” A FINRA spokeswoman said for the year 2014, “They will ensure the database is updated and will focus on bringing disciplinary actions where appropriate.” said a spokeswoman. Reporting gaps aren’t confined to brokers at small firms. The 10 largest brokerage firms in the Journal’s analysis employ at least 450 people with bankruptcy filings that should have been reported, but weren’t.

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