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FINRA Claims That It Can’t Stop Firms From Hiring High-Risk Brokers

In interviews with Reuters, the Financial Industry Regulatory Authority admitted that even though investors are harmed when broker-dealers hire brokers with checkered histories, there is not much that the regulator can do to stop this practice because it is not illegal. This is undoubtedly causing even more investors to suffer losses as some of these high-risk brokers continue to engage in more misconduct or other violations at their new places of work.

For example, reports the news agency, since 2007 broker Mike McMahon and brokerage firms where he has worked, including National Securities Corporation, have shelled out $1.35M to resolve 10 client cases in which he was purportedly involved. McMahon is currently contending with another four broker fraud cases that were brought by other ex-clients.

One of the reasons the complaints keep coming is because he has been able to move from one firm to another even with the cases that have already been brought against him. Unfortunately, McMahon is not the only one.

Reuter’s examination of FINRA data revealed that nearly 35% of the more than 700 brokers at National Securities alone have been flagged for their questionable records while working in the industry. The brokerage firm is one of 48 on a list compiled by the news agency.

To make it on the list, at least 30% of the brokers working at these broker-dealers must have been flagged by FINRA for misconduct, previous customer complaints, regulatory issues, legal disputes, employment termination following allegations of misconduct, and/or personal financial issues.

Reuters lists just not just the 48 firms, but also their respective total number of brokers, and the percentage of them that have been deemed questionable by FINRA. Here is a small sampling of the list:

* Accelerated Capital Group. 21 brokers. 71% of these brokers flagged.
* Joseph Stone Capital. 59 brokers. 71.2% flagged.
* Arrive Capital Markets. 29 brokers. 65.5% flagged
* Four Points Capital Partners LLC. 24 brokers. 65.5% flagged.
American Trust Investment Services. 28 brokers. 60.7% flagged.

* You can view Reuters’ full list here.

At Shepherd Smith Edwards and Kantas, LTD LLP, we want to point out that UBS Financial Services of Puerto Rico (UBS-PR) is also on the list and that 52% of its 125 brokers have beenflagged by FINRA has high-risk. This is not surprising seeing as for almost four years, our Puerto Rico UBS bond lawyers have been working with investors in the US and on the island to recover their massive losses from investing in Puerto Rico bond funds and closed-end bond funds.

A number of UBS brokers have been accused of misrepresenting the risks involved in Puerto Rico securities and even encouraging investors to borrow even though this was something that they could not afford without borrowing. Not only that, but also for many of them, these Puerto Rico investments were unsuitable for their portfolios and/or they could not handle the degree of risk involved.

Going bank to the list that Reuters complied, the wire service was able to put it together after Columbia University Law School DataLab created code that allowed Reuters to pull the information from FINRA’s site. Meantime, the SRO has refused to name the firms with brokers that it deems problematic even though in 2016 it claimed to have identified 90 broker-dealers that it considered to be of “highest risk” to investors.

When asked this week why the self-regulatory organization refuses to give out the names of these firms, FINRA CEO Robert Cook implied that it would be unfair and that just because a broker has been identified as “high-risk” did not mean that this person was a “bad actor.”

In a letter last year responding to lawmakers who had accused the SRO of not doing enough to protect investors, FINRA responded that not only had it identified 279 brokers whom it considered high risk but also it had since banned 238 of them for violations. The regulator also said that it had shut down approximately 130 firms between 2011 and January 2017 for fraud and other misconduct.

However, reports Reuters, FINRA data indicated that even though the firms were kicked out, in 58% of these instances, their chief executive was not and was free to move to another broker-dealer. Brokers at the expelled firms also could go on to work at other firms.

Broker Fraud
If you are an investor that has sustained losses from what you suspect may be broker fraud, please contact our securities fraud law firm today.

Special Report: Regulator blocks public scrutiny of firms with tainted brokers, Reuters, June 12, 2017

Sen. Warren Tells FINRA Chief to Rein in Broker Misconduct, Think Advisor, May 11, 2016

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