How do you ferret out unscrupulous financial advisors and bar them from ripping off the public? It sounds fairly easy, actually. After all, the securities industry has established the equivalent of a permanent record, the U4 and U5; the forms are the actual implementation of the fictitious record your school teachers used to threaten you with. (“Behave or this will go on your permanent record!”) So regulators merely have to go after the reps with multiple complains and arbitration awards. Right?
Alas, not even the existence of the U4 and FINRA's BrokerCheck — meant to disclose allegations of wrong doing for the investing public to examine — seem to force to the sidelines the really bad advisors among us. For example, last spring we wrote about an FA who had a Form U4 that was close to 100 pages long and that listed 35 customer complaints (33 of them settled) that he had amassed at several firms over eight or so years. (His employers paid out $4.6 million in settlements in total.)
Truth is, a long-list of customer complaints won't necessarily get a rep permanently kicked out of the industry. To do so, the offense has to be pretty bad. In addition, as this magazine has written time and again, many times bad brokers slink through the system because they are not named in customer complaints or in the arbitration awards that are later announced. As Staff Writer Christina Mucciolo writes about this month, this is because usually clients just want their money back — to hell with justice; the best way to do that is often just to go after the brokerages, which have the deeper pockets. Sometimes disgruntled clients' lawyers decline to name the individual FAs as leverage against the FAs to cooperate.
FINRA is trying to put a stop to some of the horse-trading that goes on after a client makes a formal complaint. Under new rules, which were put in effect in May, firms must now report on U4s arbitration claims they believe have merit regardless of whether the advisor is formally a named respondent or defendant in the case. In short, if you could have done it, you might have done it and your firm may have to name you in the complaint.
And that's why we have the very retro cover and story art this month. No doubt some of you will get the historical allusion to the Dreyfus Affair of 1898. “J'Accuse” is the famous headline given to a famous letter written by the French writer Emile Zola accusing the French Army of anti-Semitism and obstruction of justice in convicting a Jewish artillery captain, Alfred Dreyfus, of spying. French society of the day was deeply divided over the whole thing, church and army going after Dreyfus and the more liberal bourgeois society standing behind him. The issue was so hot that Zola was accused of libel and fled France for England. Dreyfus was, in 1906, exonerated. Anyway, “J'accuse” seemed like an appropriate title for Christina's story — which details that many otherwise good financial advisors could be falsely accused of wrongdoing under FINRA's new Regulatory Notice 09-23.
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