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Broker Background

A Wall Street Journal article recently highlighted the significant problem of stock brokers omitting bankruptcies, unpaid debts, and criminal charges from their regulatory records.  FINRA, the organization that regulates brokers and brokerage firms, requires members to disclose these events on their records so investors can know the type of person handling their money.  However, the Journal looked at a database and discovered that, out of 500,000 brokers, the regulatory records of over 1,500 failed to report personal bankruptcies.  Furthermore, the records of 150 brokers omitted criminal charges or convictions.  The Journal found that brokers with unreported bankruptcies typically had more customer complaints.  While a broker’s bankruptcy or criminal convictions can raise red flags for their clients who trust the broker with their money, ignoring the regulatory requirements and failing to reports these events can raise even larger issues.

The Journal also found some disturbing instances where the brokerage firms failed to discover a broker’s criminal convictions during the hiring process.  Moreover, there was at least one instance where a brokerage firm was a named defendant in a broker’s bankruptcy, but failed to report it.  These instances demonstrate that the reporting process is far from perfect and FINRA needs to be tougher in enforcing certain omissions from brokers’ records.

Avoiding brokers who have bankruptcies and criminal convictions may help you avoid scams and unsuitable recommendations.  Despite the fact that bankruptcies and convictions may not be disclosed on a broker’s regulatory record, it is still important for investors to research their brokers.  FINRA’s BrokerCheck is a useful tool on the organization’s website to help investors to do just that.  FINRA’s BrokerCheck.  Additionally, if an investor believes that they’ve been wronged by their broker, it is best to contact an attorney who can conduct more thorough research into the broker’s background.

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