When you consider that 73 percent of financial advisers who get caught engaging in misconduct are still doing business with investors a year later, you could just cross your fingers and hope your broker is one of the good ones.
Better yet, you could leaf through the grim results of a study by three finance professors released earlier this month. They looked at records of 1.2 million people registered with the Financial Industry Regulatory Authority, or Finra, to do business with the public. I wrote about the study in my latest column for TheStreet. You can read it here.
Check out your securities firm’s pitch in TV and print ads or on its web site. Chance are your broker has painted a picture of a paternalistic organization that’s devoted to doing the best thing for you and your portfolio over a period of many years.
But don’t count on that if you wind up facing them across the table at securities arbitration — your only choice in an industry that won’t open an account unless you agree to give up your right to sue in court. Lose money after broken promises that a product is safe or that a broker will be watching over your account, and you may quickly learn that all those assurances were nothing but fluff.
In my column today for TheStreet, I talk about the ways in which Wall Street tries to wiggle out of its responsibilities to its customers, arguing among other things that customers are the ones obliged to monitor their accounts. You can read it here.
Finra, the securities regulator that’s funded by Wall Street, got some attention last week when it said it was getting tougher on bad stockbrokers. The regulator said fines were going up and sanctions for fraud and the sale of unsuitable products were getting more onerous.
But Finra already had sanction guidelines that might have come to play in the case of Jerry A. Cicolani, Jr., a former broker who worked at Merrill Lynch and at Cleveland’s PrimeSolutions Securities Inc. Somehow, though, despite having been target of 69 customer complaints over the past 13 years, Cicolani wasn’t barred from the business until last September.
By that time, criminal authorities already were moving in with an investigation into his role in a Ponzi scheme. On May 1, he pleaded guilty to two criminal counts, including the sale of unregistered securities. He persuaded many of his former clients from Merrill and PrimeSolutions to invest in that scheme. I wrote about Cicolani in my story yesterday for The New York Times. You can read it here.
You may recall the bizarre story of the Long Island stockbroker who hoodwinked the producers of the Broadway show “Rebecca” into thinking he’d lined up millions of dollars for the show. The producers put up $60,000 and the broker, Mark C. Hotton, put the money in his pocket.
It was a strange tale in many ways, not the least of which was that Hotton had been fleecing investors of millions of dollars for years before he wound up in headlines for picking up a paltry $60,000 from the show biz chumps.
I nearly choked when I read that Manhattan U.S. Attorney Preet Bharara had said in a press release that the FBI had uncovered Hotton’s misdeeds “with lightning speed” in 2012. Hotton had been fleecing people ever since he forged documents and bounced a $31,550 check to buy some used cars in 1990. That’s some pretty slow lightning.
In my story for The New York Times last week, I wrote about the latest twist in Hotton’s story. His former employer, Oppenheimer & Co., had been ordered by arbitrators to pay out only $2.5 million of the $5 million that a married couple had lost at Hotton’s hands. Then, six months later, their lawyer discovered evidence that the firm had held back a smoking gun. Read about it here.