Contact: Giselle Barry (Markey) 2022242742

Lawmaker is author of 1990 law that began system for stockbroker accountability, discipline

Washington (October 25, 2013) - More than 20 years after Senator Edward J. Markey (DMass.) passed legislation that improved tracking and discipline of unscrupulous stock brokers, a new investigation has revealed that "rogue brokers" are avoiding full disclosure of their disciplinary records and failing to pay fines imposed by industry arbitration panels for ripping off consumers. A recent story in the Wall Street Journal highlighted shortcomings in oversight by the Financial Industry Regulatory Authority (FINRA), the independent organization authorized to regulate brokers and brokerage firms, which are supposed to protect investors and hold dishonest brokers accountable. In a letter to FINRA, Senator Markey calls on the agency to addresses three priority issues: fix BrokerCheck, the webbased system that allows investors to learn about disciplinary actions taken against a broker; investigate deadbeat brokers who close up shop and leave arbitration awards unpaid; and take action against "rogue brokers" who continue practicing even after number disciplinary disclosures. In 1993, as chair of the House Telecommunications and Finance Subcommittee, Senator Markey held hearings on "rogue" brokers and the need for better oversight in order to protect investors and carry out requirements of the 1990 Penny Stock Reform and Civil Remedies Act, which he coauthored.      


Additionally, Senator Markey called on the Securities and Exchange Commission (SEC) to exercise its oversight authority over FINRA and take remedial regulatory action to address these problems.


"As Yogi Berra once said, 'It's déjà vu all over again' and once again it is innocent investors who pay the price when unscrupulous stock brokers aren't held accountable," said Senator Markey. "While most people who work in the securities industry are honest and play by the rules, it only takes a few rogue brokers to undermine public trust in the entire industry.  More than twenty years ago Congress put protections in place to help consumers protect themselves by giving them access to information about brokers who had previously broken securities laws or regulations.  It is unacceptable that some brokers have been able to conceal significant disciplinary information from the public.  Even worse, it is unacceptable that once a consumer has won an award against a broker by a securities industry arbitration panel, that some brokers have failed to pay the award that has been ordered. I will continue to call for a most rigorous tracking and disciplinary system, and I look forward to hearing from FINRA and the SEC about the holes in the current system."


A copy of Senator Markey's letter to FINRA can be found HERE .


A copy of Senator Markey's letter to the SEC can be found HERE .


In his letters to FINRA and the SEC, Senator Markey called for the agencies to address three main issues:


·          BrokerCheck is broken: BrokerCheck is the FINRArun web site that allows investors to easily access the background of any broker or brokerage firm registered with FINRA including any complaints that have been filed against the broker and any resulting arbitration settlements or awards. However, more than 90 percent of arbitration settlements and half of arbitration awards don't appear in the database because brokers ask the arbitrators to delete the information and the arbitrators almost always agree. Thus, investors do not see the full history of complaints, settlements or arbitration awards that brokers have been involved in when they do their homework before making an investment decision.

·          Deadbeat brokers continue to operate: When an investor wins an arbitration award against a bad broker, the brokers often don't pay. They just close shop or declare bankruptcy. According to FINRA, $51 million in arbitration awards granted in 2011 remain unpaid, and while FINRA can suspend or expel a broker or brokerage firm for failing to pay an arbitration award, they can't make them pay the investor. They don't even require them to carry insurance to cover arbitration awards.

·          Some stockbrokers are "cockroaching": When FINRA suspends or expels a brokerage firm, the individual brokers often just go to another firm (a practice that has been dubbed "cockroaching"). More than 5,000 brokers from firms expelled by FINRA are still selling securities. And 610 had worked at multiple firms that had been expelled.  This raises concerns about whether individuals who should be barred from the securities industry are being allowed to continue to work in the industry.


In 1990, thenRep. Markey coauthored the law that required the securities industry to create a hotline that investors could call to check a brokers' disciplinary history. Today, that hotline has become the webbased system known as BrokerCheck.  In 1993, as chair of the House Telecommunications and Finance Subcommittee, Senator Markey held hearings on "rogue" brokers and the need for better oversight by the SEC and industry selfregulatory organizations in order to better protect investors. As a result of the hearing and subsequent investigations, thenSEC Chairman Levitt decided to include arbitration awards and settlements in a broker's disciplinary history and to improved tracking and discipline of unscrupulous brokers.