In a recent blog post at The Securities Law Blog, I warned investors and brokers of the fraudulent use of FINRA’s Broker Check system by fraudsters to impersonate legitimate financial professionals. See, FINRA Admits BrokerCheck Being Used for Fraud.
BrokerCheck, the publication of private, regulator-mandated information regarding financial professionals, has been a problem since the day it was created. FINRA’s inclusion of defamatory, and unproven, allegations in its Broker Check reports renders the system dangerous. FINRA’s continued marketing efforts, which do not advise investors of the flaws in Broker Check, only exacerbate the problems.
At the same time, there should be a way for investors to check the backgrounds of financial professionals – at a minimum to insure that they are properly licensed. I see far too many cases of individuals giving their hard earned money to scammers who are posing as legitimate financial professionals.
BrokerCheck has serious issues in providing false and misleading information to the public. However, for the moment it is the only game in town for investors who want to do some due diligence. The SEC has now reminded warned investors to thoroughly check the claimed credentials of people soliciting their investments to ensure they are not falsifying, exaggerating, or hiding facts about their backgrounds.
While the SEC brings cases against these individuals, their cases are brought after the fraud has occurred, and the agency does not collect damages for the investor’s losses.
Brokers need to insure that their registration information is correct, and that the information that FINRA is providing to the public is accurate. Often the defamatory information, such as the bogus customer complaint that was dismissed, or never pursued, can be removed from CRD, and therefore from BrokerCheck.
Investors need to review a BrokerCheck report with the understanding that FINRA has decided to publicize any complaint made by a customer, whether it is true or not. No professional has unsworn, unproven and often malicious allegations posted by the government on the Internet, and investors need to keep that in mind. Investors should also keep in mind that some of the larger brokerage firms simply do not report these complaints, and FINRA does nothing to punish them for failing to do so, while at the same time slamming smaller firms and brokers who do not report.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
