The
Financial Industry Regulatory Authority Inc. is making a lot of noise about keeping tabs on what it perceives to be high-risk or recidivist brokers, commonly called rogues in the industry.
At the start of the year, Finra placed the monitoring of such brokers at the top of its priorities in its
annual regulatory and examination priorities letter, and it has
created a dedicated team to keep track of so-called rogue brokers. Yet even with Finra's extra attention, countless hundreds of rogue brokers are still employed in the securities industry, jumping from firm to firm and presenting a potential danger to investors, particularly retirees and older investors.
A RED FLAG
It's fair to ask: How well will Finra's new effort to keep track of such brokers work, and will it ultimately protect investors?
Take the case of David Fagenson, a broker based in Boca Raton, Fla., with a long history of compliance issues, who was recently fired by
UBS Financial Services Inc. only to land at an independent broker-dealer with a history of compliance problems, Newbridge Securities Corp. A midsize firm, Newbridge reported $30.2 million of total revenue in 2015 and a net loss of $1.2 million.
According to
its BrokerCheck report, Newbridge got its registration approved by the Securities and Exchange Commission and Finra's forerunner, NASD, in 2000. Since then, Newbridge has reported 33 “disclosure events,” or roughly two per year since it opened for business. To put that into perspective: Cambridge Investment Research Inc., a leading independent broker-dealer that opened in 1995, has six such marks on its BrokerCheck profile.
A cluster of disclosure events at a firm is often seen as a red flag in the industry. Such marks at a firm are typically lists of arbitration awards and regulatory actions over the years.
(More: Finra's new exam unit looking to identify rogue registered reps)
And Newbridge, also based in Boca Raton, Fla., has a history of employing problem reps. One former Newbridge broker,
Gerald Cocuzzo, in November pled guilty to securities fraud for his role in a $131 million market-manipulation scheme. In 2010, the SEC temporarily barred one of the firm's owners,
Guy Amico, as a supervisor because he failed to reasonably supervise a trader at the firm. As part of the order, Mr. Amico was allowed to reapply to the securities industry after two years.
Now back to Mr. Fagenson.
According to his BrokerCheck report, in September UBS “discharged” him for violating firm policies around trading and communicating with clients while he was on heightened supervision. More specifically, he exercised time and price discretion in trades, texted with clients and engaged in short-term trading of preferred shares.
In December, he was registered with Newbridge.
Mr. Fagenson has had a peripatetic career in the securities industry, working at eight firms over the span of 29 years. In addition to his recent firing, the 12 additional marks or disclosure events on his BrokerCheck report are nine customer disputes, two regulators issues and a criminal matter. He was charged with a Class 3 felony for the cultivation of marijuana, which was later amended to a misdemeanor possession charge. His sentence was six months of probation and he was granted an early termination of that, according to BrokerCheck.
NO COMMENT
Newbridge CEO Tom Casolaro did not return repeated calls for comment. Mr. Fagenson did not respond to calls or to a message sent over LinkedIn seeking comment.
Finra can't control firms like Newbridge from hiring whom they want.
“While Finra monitors and tracks problem brokers and will examine high-risk firms more frequently, Finra cannot forbid a firm from hiring someone,” Finra spokeswoman Nancy Condon said in an email. “To be clear, we do not sign off on who firms hire. That is a business decision and one we have no regulatory authority over.”
Ms. Condon declined to comment specifically on Newbridge's hiring of Mr. Fagenson.
In 2016, Finra kicked off the year citing firm “culture” as a concern in its list of regulatory and examination priorities. So what kind of culture exists at Newbridge Securities for it to hire a broker with Mr. Fagenson's history, and how is Finra assessing that? How does a broker with a marked-up employment history who was fired in September wind up with a job three months later?
(More: New Finra head Robert Cook wants to publish exam result summaries)
Although Finra approved his license two months ago when he joined Newbridge, Mr. Fagenson is not yet licensed by any states. He is based in Florida, home to millions of retirees, which is known for having one of the toughest review processes for brokers seeking approval to do business in the state.
Finra is touting its effort to watch high-risk brokers to shield investors from harm. How hard is it looking at Mr. Fagenson and brokers like him, who get fired one day and find a new job the next?
