Finra has identified more than three dozen brokers since the beginning of the year for targeted, expedited investigations, the head of the organization told a senator in a recent letter.
The
Financial Industry Regulatory Authority Inc. has zeroed in on 42 brokers, authorizing “fast-tracked regulatory actions” through the High Risk Broker program it established in February, wrote Richard G. Ketchum, chairman and chief executive of the broker regulator.
Of those brokers, 16 became the target of enforcement actions that led to their being barred from the industry. Finra's fraud unit flagged the brokers through indicators such as broker terminations, complaints, tips, arbitrations and field reports.
“The High Risk Broker initiative demonstrates that a concentrated effort on single brokers using expedited tactical techniques can achieve material results,” Mr. Ketchum wrote in a
Nov. 13 letter to Sen. Edward Markey, D-Mass., that was released by Mr. Markey on Friday. “In 2014, we plan to expand the HRB program and create a dedicated enforcement team to prosecute such cases.”
Finra barred 1,342 individual brokers between January 2011 and Sept. 30, Mr. Ketchum wrote.
He was responding to an
Oct. 25 letter that Mr. Markey sent to Finra and the Securities and Exchange Commission calling on the agencies to crack down on brokers who violate securities rules and continue to practice.
“The fact that dozens of brokers have been designated high-risk and 16 brokers have been barred from the securities industry in mere months underscores the urgent need for Finra and the SEC to engage in much more vigorous enforcement of rogue brokers,” Mr. Markey said in a statement Friday.
In his letter, Mr. Markey referred to a Wall Street Journal article showing that 5,000 brokers who work for firms that were thrown out of the industry by Finra are still in the business.
He asserted that it is too easy for brokers to clear their records of disciplinary actions in the BrokerCheck database and avoid paying arbitration awards to harmed investors.
In his response, Mr. Ketchum wrote that Finra is making improvements in each of the areas.
More than half of his eight-page letter concentrated on so-called expungement, which allows brokers to request that disciplinary actions be removed from their BrokerCheck profiles.
“We are presently reviewing the overall expungement process,” Mr. Ketchum wrote. “We are also considering additional rule changes to address the practice of conditioning settlements upon the investor's agreement not to oppose expungement.”
A recent study by the Public Investors Arbitration Bar Association shows that expungement was granted more than 90% of the time that it was requested by brokers in arbitration cases between 2007 and 2011.
In response to that report, Finra said that it had granted 838 expungements following court orders during that time period, or in less than 5% of the 17,635 arbitration cases filed.
