Groups grapple with tracking wrongdoers

When should bad apples lose their certification?

Feb 14, 2010 @ 12:01 am

By Darla Mercado

Oren Eugene Sullivan Jr. has been barred permanently from the securities industry, and his insurance license has been revoked. The former South Carolina broker, who pleaded guilty to fraud in connection with a multimillion-dollar Ponzi scheme, victimized 35 of his former clients and is out on $100,000 bond until sentencing April 7. But according to the Certified Financial Planner Board of Standards Inc.'s website, Mr. Sullivan is still a CFP in good standing, with no public disciplinary history. The gap between a certification holder's deeds and the standard upheld by the designating authority points to a nagging problem facing such bodies: keeping up with the doings — and wrongdoings — of members at a time when the groups are emphasizing their professionalism. “If the organizations really want to uphold their designations' trademark, then they need to uphold spending the time and effort to police themselves,” said Jane L. Stafford, an attorney and managing member of Stafford + Associates LLC, which represents broker-dealers, investment advisers and mutual fund companies. “If you hold a designation out there and trademark it, you need a mechanism to get the bad apples out.”

Groups including the CFP Board, the Investment Management Consultants Association and others maintain a high bar when candidates apply for their designations. Applicants are subject to background checks, and their information is cross-checked against the records of state authorities, as well as the Financial Industry Regulatory Authority Inc.'s Central Registration Depository and the Investment Adviser Registration Depository.

Once financial advisers receive their designations, they are subject to self-reporting, whether they are parties in civil litigation or criminal complaints. Credentialing groups also expect to hear from third parties, such as disgruntled clients and their attorneys, or other designation holders who want to report on bad actors.

But that is where reporting vulnerabilities lie.

Clients may not know that that are supposed to file complaints to the organizations, and few advisers are willing to admit when they have gone astray. Even in cases in which an extensive series of complaints have been filed against an adviser, organizations conduct internal investigations before yanking a credential out of fear of slandering an adviser or inviting a defamation lawsuit.

“It's important that the disciplinary process remain fair to all involved and to the public,” said Michael Shaw, managing director of professional review and legal at the CFP Board.


Detecting bad behavior in the first place can be problematic for the organizations. Membership may be too large for the groups to conduct regular checks or audits through Finra's CRD system and other regulators' databases.

“We get tips from time to time; sometimes people call in and file grievances, and we do Google news alerts for CFPs — those are the primary ways we hear about allegations of misconduct,” Mr. Shaw said.

Gary Diffendaffer, director of certification at IMCA, noted that the group looks for mentions of its certified investment management analyst and certified private wealth adviser designations in headlines.

The CFA Institute, which says that 85% of its investigations begin as a result of self-disclosures and 10% from news reports and regulatory websites, has two investigators who monitor professional conduct, primarily through the Internet, according to Robert Johnson, senior managing director of the CFA Institute, which manages the chartered financial analyst designation.

“Monitoring conduct is a difficult task, and by no means do we believe that we catch everything that happens,” he wrote in an e-mail. “Still, we believe this is an important check on our system of self-reporting, and we expect to dedicate more time and resources to this very important function going forward.”

When the CFP Board discovers that a designee has participated in wrongdoing, it performs an internal investigation in which it seeks documents supporting the alleged violation and holds a hearing in which the offender can present evidence or cross-examine witnesses. The board's disciplinary and ethics commission arrives at a final decision on how to proceed and whether to deliver a private censure or a public letter of admonition, or resort to suspension or revocation of the CFP designation.


Other designation groups tend to take similar courses of action, performing internal investigations and subjecting errant designees to hearings before determining punishment.

However, because of the time that an investigation requires — from a few weeks to a year, according to Mr. Shaw — settlements can be reached and regulatory sanctions delivered before an adviser's bad behavior is noted on an organization's website publicly.

Mr. Sullivan's case reveals how long the process can take.

According to Finra's Broker-Check records, the broker sold clients $3.7 million of phony promissory notes between 1995 and 2008, repaying about $1.5 million before getting caught.

Finra permanently barred Mr. Sullivan in August.

Following an examination by the FBI, the broker faced a seven-count fraud indictment in September in South Carolina federal court. He pleaded guilty to one fraud charge Jan. 4 and faces a maximum of 20 years in prison and a fine of $250,000.

Despite copious local media coverage of Mr. Sullivan's misdeeds, the ex-broker managed to keep a clean track record with the CFP Board. He has held a CFP designation since 1987.

Mr. Shaw confirmed that the CFP Board was aware of the allegations against Mr. Sullivan, but wouldn't confirm whether the organization is investigating him.

For attorney Howard Rosenfield, knowing who keeps an eye on bad brokers might be a matter of distinguishing what exactly the designation purveyors are supposed to do.

“They don't view their job as being the record keeper and the beat cop,” he said.

“People qualify for them, and once they get the marks, nobody polices them. Sometimes they go off into the sunset with their designations intact,” Mr. Rosenfield said.

E-mail Darla Mercado at


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