Broker-dealers come in all shapes, sizes and specialties. But one small New York firm, Meyers Associates, stands out as a haven for registered representatives with black marks on their employment histories.
Known as “disclosure events” in the securities industry, these marks show up in BrokerCheck, the public database of broker records maintained by the Financial Industry Regulatory Authority Inc. The events vary, from customer complaints and regulatory actions to a broker's financial problems such as bankruptcies and Internal Revenue Service liens.
Disclosure events are often seen as red flags by both investors and the industry. Most top-flight broker-dealers simply won't hire reps who have multiple events on their records because they carry too much regulatory risk and potential liability for the firms.
And then there are firms such as Meyers Associates.
About 12% of registered securities professionals have some type of disclosure event on their records, according to the Finra.
At Meyers Associates, the percentage of reps with disclosure events is an astounding five times the industry average.
A review of the firm's roster of 75 brokers showed that 47 have some type of disclosure event on their BrokerCheck records.That means that close to 63% of the firm's producers have marked-up BrokerCheck histories. Of those who have disclosure events, the average is 4.5 per rep.
(See also: Don't let brokers keep watch on themselves.)
To be fair, not all customer complaints and regulatory actions turn out to have merit, and in the case of Meyers Associates brokers, not all of the disclosure events occurred while they were at the firm. Indeed, many of the brokers have worked for several firms over the past 10 to 20 years.
But frequently moving from one firm to another is also considered a red flag in the industry. One of Meyers' brokers changed firms 26 times since 1992, in some cases leaving one firm to join another, only to wind up back with one of his previous employers a few years later.
The firm's founder and chief executive, Bruce Meyers, stands out for the number of his disclosure events..
Of the 10 on his record, six are of a regulatory nature and four are from customer complaints. In 2011, Finra fined him $35,000 and suspended him for four months from working as a principal and supervisor for failing to supervise employees who were supposed to turn over documents to the regulator. At the time of that settlement, Mr. Meyers neither admitted nor denied Finra's allegations.
Dating back to 1991, another “supervisory violation occurred” when Mr. Meyers “was on vacation,” according to BrokerCheck. In 2000, he failed to enforce the firm's written procedures regarding insider trading and was fined $10,000, according to his BrokerCheck report. Another “regulatory event” occurred in 1989 when he failed to pay a $15 “renewal fee” for his license in Michigan.
$2.4 MILLION IN DAMAGES
In the four investor complaints, Mr. Meyers faced investors claiming $2.4 million in damages, according to his BrokerCheck report. He settled those for a total of $240,000, or 10 cents on the dollar.
In one complaint, he said he never spoke with the client. “Thus, in essence, I was only named because my name appears on the door, so to speak,” Mr. Meyers commented on BrokerCheck. Heads of firms, particularly small or mid-sized broker-dealers, are commonly named in investor complaints although they have had no direct dealings with clients.
Mr. Meyers on Thursday said he had no comment regarding the number of disclosure events for the firm's reps on their BrokerCheck records.
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A review of the records of Meyers Associates' brokers with multiple disclosure events shows customer complaints, but also financial problems such as judgments, tax liens or paid settlements with credit card companies. Two reps have declared bankruptcy since the credit crisis.
Clients turn to financial advisers for competent help with their money and long- term financial goals. It is understandable that a prospective client might want to know that his broker or adviser owes the IRS $314,000, as does one Meyers rep.
A look under the hood right now at Meyers Associates is relevant for a couple of reasons.
First, Finra said at the start of the year it was expanding efforts to watch closely the “small number of brokers” with a “pattern of complaints or disclosures for sales practices abuses.” A review of BrokerCheck of Myers Associates brokers shows several complaints for sales practice abuses. Will Finra crack down on Meyers Associates?
A spokeswoman for Finra, Michelle Ong, declined to discuss the Meyers firm, but wrote in an e-mail that the regulator was “very aware” of the firm.
Second, the Connecticut Department of Banking in February filed a cease-and-desist order against Meyers Associates and Mr. Meyers that could revoke the registrations of both the broker-dealer and its founder in the state, essentially shutting them down in a major metropolitan region.
According to Connecticut's allegations, the firm had a number of problems, including not taking any meaningful disciplinary action in response to one rep's “pattern of customer complaints.” The firm also offered and sold unregistered securities in the state, Connecticut alleges. The firm faces a maximum fine of up to $100,000 per violation.
“Our notice shows just how serious we take the obligation of our registrants to be cooperative during a regulatory examination,” wrote Eric Wilder, the securities division director, in an email.
The firm has an opportunity for a hearing on the allegations, according to the Connecticut Department of Banking order.
Mr. Meyers said he had no comment about the Connecticut order.
ON THE RADAR
How Finra and various state regulators monitor and discipline broker-dealers gets at the heart of an embedded conflict of interest in the securities industry. How do broker-dealers walk the tightrope between adequate supervision of brokers and providing investors with the products and services they want or need?
“If a broker has a book of business, firms are willing to overlook” disclosure events and customer complaints, said Heath Abshure, Arkansas securities commissioner. “But I do think firms are getting better at supervision.”
While not commenting on Meyers Associates, Mr. Abshure said that once one state regulator begins an action such as a cease-and-desist order against a firm, that firm is on the radar of other regulators.
“Arkansas is constantly monitoring disclosure events,” he said. “If one state takes action [against a firm], we might take a look at it too.”