NorthStar Financial Services (Bermuda)Learn More Here. Se Habla Español.

FINRA Promises To Take Tougher Stance With Rogue Brokers

The Financial Industry Regulatory has barred Lawrence M. Thomas, an ex-Woodbury Financial Services Inc. broker who was under investigation for unauthorized product sales. Thomas was previously registered with Essex Securities.

Last year, Thomas was fined $5K and suspended for three months after he consented to findings that he told an assistant to forge three customers’ signatures on about 10 documents. FINRA had been looking into whether Thomas recommended to Woodbury clients that they purchase an unauthorized product. The self-regulatory organization barred him after he failed to testify in FINRA’s investigation into the claims.

In an unrelated FINRA case, the SRO has filed charges against Kim Dee Isaacson, an ex-Morgan Stanley (MS) broker, for allegedly misleading a client about the size of his account, engaging in unauthorized trading, and attempting to resolve these issues directly with the client instead of along with the firm. According to FINRA, Isaacson told the client that the account was valued at $3.1M even though that was false.

Last year, a FINRA arbitration panel awarded H. Keith Melton about $3.6M against Morgan Stanley liable for not properly supervising Isaacson, who was Melton’s broker. Melton, who is the author of numerous espionage and spy books, accused Isaacson of deceiving him about his investments for years. In his broker fraud case, the author alleged breach of fiduciary duty, negligence, and other misconduct from about 2010 to 2014.

FINRA Promises to Step Up Efforts to Stop Rogue Brokers

Meantime, the regulator announced that it is taking new steps to go after rogue brokers. It is proposing that member firms that hire too many brokers who were expelled from firms because of past misconduct be marked as such on its BrokerCheck site.

Under the proposal, if these “taping firms” have under their hire more than a certain percentage of rogue brokers who either were previously expelled or had their registrations taken away for violations, then the firms would have to record all broker conversations.

The regulator said that it intends to double the number of high-risk firms that are examined by enforcement teams and examiners with the help of a dedicated unit that it set up last year. The unit is aspiring to examine about 400 rogue brokers.

FINRA also said that it wants to establish certain rules that would limit a rogue broker’s ability to work again in the industry. At an event this week, FINRA CEO Robert Cook spoke about the agency’s plans to publish further guidance about brokerage firm supervision of “higher risk” brokers, including how to identify which brokers need to be under stricter supervision and what that might entail.

That said, in an interview with Reuters, FINRA officials have reportedly admitted that even as certain firms have hiring practices that pose a “threat to investors” there is not much that the regulator can do to stop them from retaining potentially risky brokers because no laws are being broken.

At Shepherd Smith Edwards and Kantas, LTD LLP, our broker fraud lawyers work with investors in trying to recoup their investments. Contact us today.

Spy author says adviser deceived him, wins $3.6M award against Morgan Stanley, Financial Planning, June 21, 2016

Woodbury broker barred after recommending an unauthorized product, InvestmentNews, June 12, 2017

Finra charges former Morgan Stanley broker with misleading client about account size, InvestmentNews, June 12, 2017

FINRA to Weigh Rule Changes Targeting High-Risk Brokers, Bloomberg BNA, June 12, 2017

FINRA Claims That It Can’t Stop Firms From Hiring High-Risk Brokers, SSEK Blog, June 12, 2017

Contact Information