(Corrects 9th and 10th paragraph to clarify that Dobin has been
approached by grandfathers with legal problems from their youth,
such as shoplifting. He has not represented a grandfather with a
By Suzanne Barlyn
March 6 A disclosure system that Wall Street's
watchdog promotes as a tool for researching brokers lacks
crucial details, a group of consumer lawyers says it will reveal
in an analysis on Thursday.
The analysis will raise questions about whether the
BrokerCheck service, run by the Financial Industry Regulatory
Authority (FINRA), gives investors all the information they need
to make an informed decision about choosing a broker. The study
is being released by the Public Investors Arbitration Bar
Association (PIABA), a group of attorneys who represent
investors in securities arbitration cases.
FINRA does not go as far as state securities regulators do
in some of its disclosures, the group says.
For example, BrokerCheck does not typically disclose
specific reasons why a broker was fired, or bankruptcies from
more than 10 years ago, PIABA says, although those items would
turn up in state disclosures.
FINRA and state securities regulators have access to the
same information: It is included in a huge database on brokers
and brokerage firms maintained by FINRA and used by the states,
the industry and other regulators. FINRA, though, doesn't
include all of the details in BrokerCheck, PIABA said.
The report will highlight an issue that divides securities
brokers and lawyers who represent investors: How much of a
broker's past should the regulator publicize? The best answer
requires a delicate balance between investors' right to know
about significant past transgressions and the broker's concerns
that old and minor issues could unfairly damage their
For example, the BrokerCheck file features items such as a
broker's licenses and details about arbitration complaints that
investors file to recoup money they say they're owed. It doesn't
include items like test scores on licensing exams, or whether a
broker paid off a tax lien.
The report is being issued as deeper problems with FINRA's
disclosure BrokerCheck were brought to light. A Wall Street
Journal investigation published late Wednesday found that the
public records of some 1,600 brokers failed to include criminal
charges, bankruptcy filings and other problematic issues that
should have been in their files. (link.reuters.com/dak47v)
Some lawyers for brokers think the system already discloses
more information than it should. Not all of it helps investors
and it can cast a pall over the broker, said Marc Dobin, a
lawyer in Jupiter, Florida, who represents brokers.
"Sometimes we get approached about grandfathers with
shoplifting problems from when they were 19 in college pranks,"
That is the kind of information FINRA already reports that
may not be helpful to investors, Dobin said.
"That 65-year-old grandfather is not the 19-year-old kid who
wasn't thinking straight," Dobin said.
PIABA, in a call with reporters on Thursday, will focus on
differences between BrokerCheck and the larger database, called
the Central Registration Depository, or CRD. It includes a broad
range of information that firms, brokers and regulators report,
such as when a broker leaves a firm or pleads guilty to driving
FINRA uses substantial information from that database in its
BrokerCheck system, but not every detail. The regulator has
consistently encouraged investors to use BrokerCheck and consult
their state securities regulator before choosing an investment
professional, a FINRA spokesman said. In addition to
BrokerCheck, FINRA provides website links to state securities
FOCUS ON FLORIDA
To be sure, FINRA in recent years has broadened the types of
information available to the public on BrokerCheck and made it
easier to use the disclosure system. In 2010, it added details
such as arbitration complaints and lawsuits against brokers
dating back to 1999. Previously, a broker had to rack up three
or more such actions before they appeared.
Even brokers who leave the industry will find their
information permanently available in the system. Before 1999, it
used to disappear after two years.
Dogged investors can access the data on the broader database
that regulators use, but it takes some effort: The clunky
process typically involves sending a written request to the
state's securities regulator, in a format required by the
state's open records law.
States with robust open records laws, such as Florida, will
often respond with a report that can include more details than
those in BrokerCheck. For example, a report from Florida would
include the specific reason for a broker's termination,
according to a spokeswoman for the Florida Office of Financial
Regulation. A BrokerCheck report, in contrast, mentions the word
"terminated," but without providing details.
Florida reports may include the broker's history of
bankruptcy filings, while BrokerCheck includes those filed
during the previous 10 years. Other Florida report details
include whether a broker passed or failed an exam and his score,
the Florida Office of Financial Regulation said. BrokerCheck, in
contrast, lists only exams that the broker passed.
A SECOND LOOK
PIABA's analysis will not be the first look at differences
between BrokerCheck and the larger database that regulators use.
The U.S. Securities and Exchange Commission's staff studied the
issue in 2011, as required by the Dodd-Frank financial
regulation reform law.
That study recommended that the SEC staff and FINRA look into
whether it is feasible for BrokerCheck to include all of the
information from the larger regulatory database.
Since then, the SEC approved several FINRA proposals that
broadened disclosures, including one that adds details about
brokers who settled investment-related civil cases with state
and foreign regulators.
More disclosure, however, is not always the solution that
investors need, said Barbara Roper, investor protection director
for the Consumer Federation of America, an advocacy group.
"Investors get so lost in the details that they fail to
capture the most important information," said Roper, who has not
yet seen the PIABA report.
Those major details include the broker's history of
regulatory problems, orders to pay securities arbitration awards
to investors and large numbers of complaints for sales practice
abuses, Roper said.
The question for regulators to answer, she said, is whether
they are doing a good job of presenting information that
highlights what's important to the investor.
(Reporting by Suzanne Barlyn; Editing by Linda Stern and Jan