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FINRA Ready To Impose More Disciplinary Actions Against Brokers That They Can Fail To Report

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It turns out that scrupulousness is not an attribute that can be claimed by all members of the brokering class. Or, rather, it can be and often is claimed, albeit with a singular and spectacular disregard for the truthfulness of said claim.

In less than two years, stockbroker Marcos D. Leiva racked up a personal bankruptcy, a tax lien, a court judgment for unpaid debt and a criminal guilty plea relating to a false report to law enforcement.

Each should have been promptly disclosed to investors. None was.

Mr. Leiva is one of more than 1,600 stockbrokers whose records failed to disclose bankruptcy filings, criminal charges or other red flags in violation of regulations, without regulators noticing, according to a Wall Street Journal analysis.

These same brokers have also accumulated more disciplinary actions by regulators and complaints from clients, on average, than other brokers, the Journal's analysis of hundreds of thousands of stockbroker records shows.

Well, now, this doesn't look good at all for FINRA, which is supposed to be running the database that allows people to see what kind of shenanigans their would-be brokers have gotten up to before they cut the check. And it is running that database, and editing it, although perhaps not in the direction one might hope.

A major Wall Street regulator "routinely deletes" red flags on stockbrokers such as flunked tests and firms' probes into potential sales abuses from the information it makes available to investors, said a study released Thursday.

The Financial Industry Regulatory Authority excludes "crucial" potential warning signs on brokers from its online BrokerCheck tool that it encourages investors to use, according to the analysis by the Public Investors Arbitration Bar Association, an organization of lawyers who represent investors in claims against brokers….

Responding to the PIABA report, Finra said in a statement "while the system may not be perfect, we do have to make determinations on what information about registered representatives is appropriate to release, while at the same time balancing fairness."

Of course, now that someone else has figured out that said balance is weighted rather heavily towards fairness for FINRA members rather than customers, the self-regulatory organization has sighed and shrugged its shoulders and agreed to do something. Or at least say something.

"We are deeply concerned by these reporting failures, which are inconsistent with the regulatory responsibility of both firms and their registered persons," a Finra spokeswoman said. "This situation is unacceptable."

The regulator said it would seek to ensure that its database is updated and will focus on potentially "bringing swift disciplinary actions where appropriate."

Disciplinary actions that we're sure will pop up on BrokerCheck eventually, at least until FINRA junks them. For fairness' sake.

Stockbrokers Fail to Disclose Red Flags [WSJ]
Regulator Deletes Red Flags From Brokers' Records [WSJ]


FINRA Pulling Out All The Stops To Keep The Journal From Humiliating It Again

Moving forward, firms will actually be required to report brokers' liens and judgements.