Category Archives: Broker/dealer

The Financial Industry Regulatory Authority (FINRA) has unveiled a new and improved version of its BrokerCheck Web site that allows investors and other individuals to more quickly access and intuitively understand the professional background of investment professionals.

“Investors using BrokerCheck will encounter a more user-friendly interface that allows them to quickly find information that can help them decide if an investment professional is right for them,” said Derek Linden, FINRA Executive Vice President, Registration and Disclosure, in a statement.

The new changes let investors search both the BrokerCheck and Investment Adviser Public Disclosure (IAPD) record of any securities professional or firm directly from FINRA’s homepage.  BrokerCheck then presents the search results in a more user-friendly graphical timeline that details the industry professional’s employment status and history, industry registrations, and any reportable events such as customer disputes or disciplinary actions that may have occurred during his or her career.

FINRA also plans to make the new BrokerCheck widget available to third-party Web sites, allowing visitors to those sites direct access to securities professionals’ or firms’ BrokerCheck or IAPD reports without having to visit the FINRA or Securities and Exchange Commission (SEC) Web sites.

In 2012, members of the public used BrokerCheck to conduct 14.6 million reviews of broker or firm records.

Investment and financial fraud is a $50 billion a year crime – and one that can happen to the young, old, sophisticated investors and novices alike. A recent report from the FINRA Investor Education Foundation found that more than 8 in 10 respondents were solicited to participate in potentially fraudulent financial offers, with 11% of all respondents losing a significant amount of money after engaging in such deals.

Even though financial fraud and investment schemes are commonplace, many Americans don’t know the red flags of financial scams because they lack an understanding about the fundamentals of investing, such as realistic rates of return on their money. Older Americans are particularly vulnerable to financial fraud. According to the FINRA Foundation report, Americans age 65 and older are more likely to be targeted by fraudsters and more likely to lose money once targeted. Upon being solicited for fraud, older respondents were 34% more likely to lose money than respondents in their forties.

Additional highlights of the FINRA Foundation study include the following:

– Many Americans are vulnerable to fraudulent investment pitches promising unrealistic returns because they fail to realize what a reasonable return on an investment should be. For example, nearly half of respondents found a daily rate of return of more than 2% appealing. Claims of achieving “typical” returns of 110% per year were found attractive by 42% of respondents.

– 84% of respondents reported being solicited with at least one of the 11 types of potentially fraudulent offers.

– 67% said they had received an email from another country offering a large amount of money in exchange for an initial deposit or fee.

– 64% had been invited to an “educational” investment meeting that turned out to be a sales pitch.

– 18% had been asked to participate in an investment that offered a commission for referring other investors.

You can read FINRA’s entire report here.

A U.S. Senator says he has serious concerns about the ability of the Financial Industry Regulatory Authority (FINRA) to protect investors from “rogue brokers.” In a letter to Richard Ketchum, who heads FINRA, Sen. Edward J. Markey, D-Mass., says the regulator needs to improve its BrokerCheck database, as well as take stronger action against bad brokers.

Markey also expressed concerns about the fact that brokers can expunge information about themselves and related award settlements from the BrokerCheck Web site.

“Investors cannot protect themselves from dishonest brokers if they cannot determine whether brokers with whom they are considering investing funds have large or repeated settlements or awards due to their wrongdoings or mismanagement,” Markey stated in the letter.

Markey also called on the Securities and Exchange Commission (SEC) to tighten its oversight authority and take “remedial regulatory action to address these problems.”

You can read Markey’s letter in its entirety here.

Crowdfunding investing is about to be available to the average Joe – and that means the floodgates to a whole new set of potential risks could be opened wide, predict investor protection advocates.

The Securities and Exchange Commission (SEC) voted yesterday to propose rules that, for the first time, would allow entrepreneurs and start-up companies looking for investors to solicit over the Internet from the general public.

If adopted by the SEC, the proposal would be a major change in the way in which small U.S. companies are allowed to raise money in the private securities market. Currently, private companies can solicit only from accredited, sophisticated investors who have a net worth of at least $1 million or an annual income of more than $200,000.

The proposed investment crowdfunding rule changes this scenario, giving small businesses the green light to raise up to $1 million a year by soliciting unaccredited investors.

For those investors, the new proposal is a chance to get on the ground floor of the next big investment. At the same time, however, investment crowdfunding can be extremely risky, given the fact that most start-ups never see the light of day. A recent Wall Street Journal article reported that 3 out of 4 venture-backed start-ups fail.

In addition, critics of investment crowdfunding say it will unleash a myriad of new fraud schemes, particularly among unsophisticated investors.

The SEC’s crowdfunding proposal is in response to the Jumpstart Our Business Startups (JOBS) Act, which was signed into law by President Obama last April as a way to help spur small business growth by easing federal regulations.

Last year, the North American Securities Administrators Association (NASAA) issued an advisory for investors considering crowdfunding. Among other things, the report highlighted a number of crowdfunding concerns, including offers from disreputable persons and platforms seeking to prey on entrepreneurs unfamiliar with the JOBS Act’s requirements.

A new informational tool has been released by the National Center for Victims of Crime and the FINRA Investor Education Foundation to help victims of financial fraud.

Taking Action: An Advocate’s Guide to Assisting Victims of Financial Fraud provides step-by-step strategies to address major types of financial crime, including investment fraud, identity theft, mortgage and lending fraud, and mass-marketing scams. The guide is available for download or can be ordered from within the Program and Outreach Toolkit on the FINRA Foundation’s SaveAndInvest.org Web site.

“While prevention strategies have an important role to play in addressing financial fraud, the increasing incidence of financial fraud has made more urgent the importance of consistent and accurate advice to victims,” said FINRA Foundation President Gerri Walsh in a statement.

Financial fraud strikes people from all walks of life, and older Americans are especially vulnerable. A recent survey from the FINRA Foundation of nearly 2,400 U.S. adults age 40 and older revealed that more than 80% of respondents had been solicited to participate in potentially fraudulent schemes, and more than 40% of those surveyed could not identify some classic “red flags” of fraud. Additionally, Americans age 65 and older are more likely to be targeted by fraudsters and more likely to lose money once targeted.

The financial effects of investment fraud are enormous, costing consumers billions of dollars every year. A report by the Financial Fraud Research Center – Scams, Schemes and Swindles: A Review of Consumer Financial Fraud Research – found that an estimated $40 billion to $50 billion of measurable, direct costs are lost to fraud annually.

“Taking Action represents not only an innovative collaboration between The National Center and the FINRA Foundation, but an important advancement in the victim services field,” said Mai Fernandez, Executive Director of The National Center for Victims of Crime.

Fraud researchers typically find that only a small percentage of people actually report to authorities that they’ve been a victim of financial fraud. In the FINRA Foundation’s survey, a small group of respondents who admitted to investing in a fraudulent investment, but did not report the fraud, said that reporting the crime would not have made a difference, that they did not know where to report it or that they were too embarrassed. Taking Action was developed, in part, to help increase the number of victims who report fraud and get access to assistance.

Investors who rely on public records to check out the background of their current or a potential broker are, in many cases, unlikely to get a complete picture, according to a new study by the Public Investors Arbitration Bar Association (PIABA). That’s because it’s too easy for brokers who are involved in investor arbitration cases to wipe their slates clean of any wrongdoing, the study says.

Specifically, the study found that between January 2007 and May 2009, expungement was granted 89% of the time in cases resolved by stipulated awards or settlement and 96.9% of the time between May 2009 and December 2011.

The study goes on to show that some stockbrokers take a particularly aggressive approach to remove any evidence of an investor’s claim from their record. As an example, one individual associated with a brokerage firm requested expungement 40 times, with arbitration panels granting such relief to that individual 35 times.

“To say that ‘expungement’ of customer claims from broker records is a major investor protection problem is an understatement. The result is that investors who are diligent enough to seek out information about brokers may be getting a woefully incomplete picture of the individual to whom they will entrust all or most of their nest egg,” said PIABA President Scott Ilgenfritz and the author of the study.

“What is supposed to be an extraordinary relief measure is now being sought and granted in roughly nine out of the 10 settled cases that we studied. This clearly indicates that the current expungement procedures are seriously flawed. Regulators need to step in and crack down on the granting of expungements, particularly in settled cases,” Ilgenfritz added.

In the report, PIABA calls on the Financial Industry Regulatory Authority (FINRA) to provide more and better training for arbitrators concerning their roles in the expungement process. In addition, the report says FINRA needs to play a more active role in arbitrators’ rulings on motions for expungement relief.

Massachusetts’ chief securities regulator William F. Galvin is beginning an inquiry into the impact of Puerto Rican debt on Massachusetts mutual fund investors. Specifically, Galvin wants to know the extent of Massachusetts’ investors’ risk exposure, if investors were made aware of the risks, and when firms that marketed and sold the funds became aware of the risks associated with Puerto Rican debt.

The state also plans to review whether the bonds were properly priced since July 2012.

Galvin has sent letters of inquiry to Fidelity Investments, OppenheimerFunds Inc., a unit of Massachusetts Mutual Life Insurance Co., and UBS Financial Services.

Puerto Rican municipal debt obligations are popular for their yield and their tax-exempt status. However, Puerto Rico is nearly insolvent today, making the risks of such investments extremely high.

You work hard for your money, so when you trust it with a broker or investment adviser you want to make sure that person or company is legitimate. While the majority of the stockbrokers, brokerage firms, investment advisers and investment firms are, indeed, reputable, it never hurts to do your homework because sadly there are some individuals and firms ready to take advantage of you and your money.

State and federal laws require brokers, advisers and firms to be registered or licensed. With this in mind, before you invest your money it may be helpful to contact the securities regulator in your state. Among other things, the state securities regulator can provide employment information about a broker or investment adviser, as well as disciplinary and registration information. You can find contact information for your state securities regulator here.

The North American Securities Administrators Association offers several resources in this area on its Web site. Other helpful hints from NASAA on what to do before investing your money include asking for all materials from the Central Registration Depository (CRD) about your prospective stockbroker. This computerized database contains licensing and registration information on more than 650,000 stockbrokers.

In addition, search the Investment Adviser Public Disclosure (IAPD) Web site for information on investment adviser representatives and firms registered with state securities regulators and the Securities and Exchange Commission (SEC).

Lastly, you can find information and research on brokers, brokerage firms, investment adviser representatives and investment adviser firms through the BrokerCheck Web site of the Financial Industry Regulatory Authority (FINRA).

The idea of mandating that brokerage firms carry arbitration insurance is on the table for consideration by the Financial Industry Regulatory Authority (FINRA). As reported by the Wall Street Journal last week, the problem of brokerage firms shutting down without paying awards or other legal claims owed to investors has been an ongoing issue for FINRA for some time now.

“We’re going to evaluate the whole area and see if there are additional steps we can take,” said Susan Axelrod, FINRA’s executive vice president of regulatory operations, in the Wall Street Journal story.

As noted in the Wall Street Journal article, “the financial cushion at some brokerage firms is so thin that just one arbitration award could put them out of business. More than 940 firms disclosed net capital of less than $50,000 in their most recent financial reports as of July 1.”

In 2011, FINRA says that $51 million of arbitration awards granted in 2011 haven’t been paid, or 11% of the total awards. The percentage is up from 4% in 2009 and 2010.

Adding to the problem is the fact that many brokers at firms that go out of business often continue working in the financial industry. Meanwhile, investors are left with nowhere to turn and no help by state regulators when they try to collect their awards.

Some state securities regulators support the idea of requiring brokerage firms to have arbitration insurance.

The Securities and Exchange Commission, which oversees FINRA, requires smaller brokerage firms to have net capital of at least $5,000 or a level related to the firm’s debts, if higher. The net capital rules are in place to ensure that brokerage firms can return investors’ assets if the firm fails.

Still, those rules don’t do much good for investors who lose money because of alleged broker misconduct and are unable to get their arbitration awards because the firm has shuttered its business.

FINRA’s Axelrod said in the Wall Street Journal article that regulator will consider whether brokerage firms should be required to have “errors and omissions” insurance, which can cover claims for negligence or misconduct by the brokers.

Case in point: Provident Royalties LLC. In 2009, the SEC charged the firm and its three owners of operating a $485 million Ponzi scheme. Earlier this year, the executives pleaded guilty to criminal charges related to the fraud.

FINRA has since taken disciplinary action against several brokerage firms and brokers for allegedly selling Provident Royalties’ private placements without conducting their proper due diligence. More than $150 million was sold by firms that have closed and appear to have no insurance or other means to pay investors.

In a settlement announced Wednesday, Citigroup Global Markets has agreed to pay a $30 million fine to Massachusetts regulators to settle charges that a former Citi analyst in Taiwan improperly shared research with four major clients one day before making that information available to all of the firm’s clients.

Massachusetts Secretary of State William Galvin said in a statement that by giving the information to a select large U.S. hedge fund and institutional clients in advance, it allowed them to profit from weaker sales of Apple iPhones.

The $30 million fine is one of the biggest that state securities regulators have collected to date and more than 15 times the $2 million fined to Citi one year ago for improperly disclosing research on Facebook’s initial public offering.

As reported by Reuters, former Citigroup analyst Kevin Chang emailed the unpublished research about Hon Hai Precision Industry Co., a major supplier of Apple Inc. iPhones, to SAC Capital Advisors (a group of hedge funds founded by Steven A. Cohen in 1992), T. Rowe Price, Citadel and GLG Partners.

Among other things, Chang’s research included lower order forecasts for Apple’s iPhones in the first quarter of 2013, which would have had a detrimental effect on Apple, Massachusetts Secretary of State William Galvin said.

After receiving the information from Chang, SAC, Citadel and T. Rowe Price all sold Apple stock, the complaint alleges.

Chang, who worked for Citigroup in Taiwan, was terminated last month, the complaint noted.