A recent story from Investment News says it all, “Broker-Dealer a Magnet for Brokers from Troubled Firms.” According to that story, 31 of the 37 stockbrokers employed by the small, independent brokerage firm IAA Financial come from firms that were expelled by regulators. What is even more amazing is that 7 of those brokers apparently worked for 5 or more firms that had been expelled by the Financial Industry Regulatory Authority (FINRA).
We understand that just because a brokerage firm was expelled doesn’t mean that all its employees were bad. Still, the sheer number of brokers that worked for crooked firms is very troubling to us.
FINRA makes brokers records available online and without cost. We are amazed how few people actually use their “BrokerCheck” tool to check the complaint history and records of both their broker and his or her employer.
According to a recent Wall Street Journal report, most brokers (99%) have one or no disclosures on their record. A disclosure is a customer complaint, regulatory action, personal bankruptcy or criminal conviction. Half of the IAA Financial brokers, however, had an average of 4 disclosures.
One IAA broker, Salvatore Clark, has had 14 employers during his securities career and racked up 16 complaints.
According to FINRA’s BrokerCheck system, Clark’s record includes: “customer dispute settled, regulatory – final, customer dispute settled, customer dispute settled, customer dispute settled, customer dispute settled, employment separation after allegations, customer dispute settled, regulatory final, regulatory final regulatory final, customer dispute award / judgment, customer dispute settled, regulatory final, customer dispute settled and criminal final disposition.
Six of the previous firms Clark worked for were expelled by FINRA.
The criminal conviction against Clark apparently stems from a fight and was long ago. We are not as troubled by those allegations as we are with customer claims that he engaged in unauthorized trades, breach of fiduciary duty and fraud. Unfortunately, he is not the only IAA broker with past claims of unauthorized trading and misconduct.
What is the bottom line? IAA Financial’s lawyer claims that there is no reason to think that a prior mistake of some of their brokers or their prior employers has any bearing on how they are performing today. (In a small touch of irony, their lawyer is the small firm rep to a FINRA governing body.)
We challenge that assertion. Customers are certainly able to draw their own conclusions but most will not conduct any due diligence until after they lose money.
Many of the smaller independent brokerage firms are closed when regulators determine they have insufficient net capital. It is shocking how little money is needed to open a brokerage firm. Unfortunately, that means many of these firms are just one claim or one lawsuit away from closing their doors.
As IAA Financial proves, if the door closes many of the brokers will simply open shop nearby and start all over again. Unfortunately, it’s a lot tougher for the victims of bad brokers to simply start again.
Lose money because of a dishonest stockbroker? We handle cases involving unauthorized trading, unsuitable investments, churning, excessive commissions and other misconduct. For more information contact attorney Brian Mahany at (414) 223-0464 or by email at . All inquiries kept in confidence.