“Cockroaching” – I must admit until I picked up today’s Wall Street Journal, I wasn’t familiar with term. Although the term was new to me, the underlying practice is unfortunately well known in the world of investment fraud lawyers. Cockroaching refers to the practice of stockbrokers jumping from one troubled brokerage firm to another.
The premise is quite simple. bad brokers are attracted to bad firms. Good firms with robust compliance controls won’t tolerate high pressure “boiler room” tactics and unethical behavior. Unfortunately, there are plenty of bad firms out there ready to make a quick buck. These same firms are usually thinly capitalized meaning there is little ability to collect an award for damages.
We have long suggested customers use the free online tools offered by the Financial Industry Regulatory Authority – FINRA and the SEC. FINRA’s broker check can tell you all about your stockbroker in just a few seconds. Disciplinary actions, customer complaints, criminal records and unpaid judgments are some of the details reported by FINRA. Unfortunately, the system relies on voluntary reporting meaning the really bad criminals might simply fail to self report their prior transgressions.
The BrokerCheck and SEC systems are not just for stockbrokers and investment advisors. You can also use the free tools to check up on the firm. As the WSJ article clearly demonstrates, cockroaching brokers frequently bounce from firm to firm. If you find that the brokerage firm where you broker is employed has many pending investment fraud complaints, consider moving to a more reliable firm. Obviously huge firms like Merrill Lynch will have some complaints but determine what is reasonable and fits your comfort level. A 5 person shop with 50 pending complaints screams “Run Away” while a 1000 person firm with 5 pending complaints is probably fine.
The Wall Street Journal chronicles the story of Kenneth Dwyer. According to the story, his first employer was expelled by regulators. Ditto for his 3rd, 4th, 7th and 8th employers. His 10th employer closed in June after being accused of investment fraud. This story isn’t about Mr. Dwyer. It is about cockroaching and the need to conduct meaningful due diligence before investing one’s hard earned money.
We have declined many cases because by the time the victim came to us, his or her brokerage firm had closed its doors. These firms often carry minimal insurance and are woefully undercapitalized. One judgment or arbitration award and the firm simply closes its doors. A day later its same representatives have joined another questionable company.
Brokerage firms have a duty to supervise their employees. The good ones do. Everyone makes mistakes, however, and even good firms sometimes hire a rotten apple. If your broker bounces around frequently, be suspicious. If you believe you lost money because of fraud, bad advice or churning (excessive trades leading to large commissions), take action immediately.
Most investment fraud cases are handled by arbitration. FINRA arbitrations usually take just over a year to complete. In most jurisdictions that is far faster than understaffed courts can deliver. These cases can usually be handled on a contingency fee too meaning no legal fees unless you collect.
We handle stockbroker fraud cases where the loss exceeds $100,000 or more. Our investment fraud lawyers have helped many victims of get back their hard earned money. We also take cases involving other types of frauds including legal and accounting malpractice and Ponzi schemes.
For more information, contact attorney Brian Mahany. Brian can be reached at or by telephone at (direct). All calls are protected by the attorney – client privilege and kept confidential. Case accepted in many jurisdictions.
Post by Brian Mahany, Esq.