Finra Doesn’t Make Public All Its Information About Brokers

Wall Street Journal (December 26, 2014 8:47 pm) -- Wall Street’s own national watchdog doesn’t make public all the regulatory red flags it has about brokers, prompting calls from state regulators for more expansive disclosure.

Investors checking disciplinary records from the Financial Industry Regulatory Authority, or Finra, can see that in Bennett Broad’s 35-year career as a stockbroker, he has faced 25 customer complaints involving alleged trading abuses, and that 15 ended in payouts to clients.

What they won’t see is that a former employer, UBS AG , launched an internal investigation into Mr. Broad’s business practices back in 2003 and then, according to state regulators, “permitted” him “to resign.” At least eight of his 25 complaints involved conduct after that investigation.

Finra, an industry-funded overseer of brokers, encourages investors to check its BrokerCheck Web page to look for regulatory red flags about individual brokers, including complaints, regulatory actions, terminations for cause and personal bankruptcies. Mr. Broad’s BrokerCheck reveals neither the UBS investigation nor his resignation—even though they show up on his state regulatory record.

A Wall Street Journal examination of federal and state regulatory data revealed that a wealth of information about brokers is reported to the national regulator but not made public by it. The Journal found at least 38,400 brokers have regulatory or financial red flags that appear only on state records, which in most states aren’t available without contacting state regulators. Of those, at least 19,000 had completely clean BrokerCheck records.

Although brokers who face internal reviews by their employers are statistically more likely to have other problems, BrokerCheck doesn’t disclose such reviews. The Journal identified 4,346 brokers with one or more internal review reported on their state records, but not on BrokerCheck. These brokers were more than 11 times as likely as the average broker, the Journal’s analysis shows, to have three or more red flags on BrokerCheck—the industry standard for “troubled” brokers.

Mr. Broad, 59 years old, said he knows nothing about the UBS internal probe and declined further comment. In the responses he made to BrokerCheck about complaints, he either denied allegations or didn’t comment on them. A spokesman for UBS said the firm had reported its investigation of Mr. Broad as required by Finra. A spokesman for his current firm, Oppenheimer & Co., declined to comment.

Finra said it is reviewing—partly in response to the Journal’s reporting—its rules about what it discloses when brokers lose their jobs for alleged investment-related misconduct. It said it aims to ensure that whenever a firm discovers regulatory misconduct by a departing broker, that fact will show up on BrokerCheck.

The change is designed make it more difficult for stockbrokers to avoid termination black marks on their records by leaving a firm while an internal review is under way but not completed, officials said.

Finra said it is undertaking a review of its database and contacting some brokers to find out why they haven’t reported some information. The review, which Finra said is 40% complete, has prompted some 1,000 brokers to report red flags that weren’t previously shown on BrokerCheck. A Journal investigation earlier this year found more than 1,600 brokers had failed to disclose criminal histories and personal bankruptcies.

Finra declined to give the Journal access to bulk data about all stockbrokers, which would reveal the frequency of various problems. The Journal analyzed records from 26 state regulators, covering about 118,500 brokers with red flags. There are 640,000 registered stockbrokers nationwide.