FINRA, the financial industry’s self-regulating watchdog, has proposed that the organization’s central database for providing background checks on securities brokers be expanded to provide more information to both the investing public and prospective employers. FINRA, which stands for Financial Industry Regulatory Authority, was created in 2007 by the merger of the NASD (National Association of Securities Dealers) and the self-regulating entities of the New York Stock Exchange to provide uniform standards for self-regulation of the securities industry, including an online background database called BrokerCheck. By going to BrokerCheck, investors can check out a broker before entrusting him or her with their money. BrokerCheck lists the broker’s credentials and licensing, employment history, and disciplinary history—including prior claims, criminal prosecutions and regulatory actions. But under current FINRA rules, there is a loophole in BrokerCheck that allows some brokers who left the industry due to misconduct, but were later allowed to return, to escape detection.
A large number of investors have been defrauded by brokers or other investment advisers who have left the industry and later returned. Under current rules, regulatory actions against brokers are not reported by BrokerCheck once the broker has been out of the industry for more than two (2) years. But if the broker returns to the industry after two (2) years, the current system does not allow the public to know the broker’s past shady history. To remedy this loophole, FINRA is now proposing that regulatory actions be a permanent part of the database that will always be accessible to the public. This change will not only allow investors to avoid problem brokers before they invest their money, but it will also make it easier to sue bad brokers and their employers, if previously unknown information is available to the public. This would not only apply to brokers who left the industry and returned, but it would also apply to cases where a broker leaves the industry and is not sued until more than two (2) years later, because the statutes of limitations in many states allow investor suits to be brought four (4) or more years after the fraud occurs, depending upon the facts and the legal theory that the claim is based upon. Brokerage houses owe a duty of due diligence to check the backgrounds of their employees whether such information is publicly available or not, and once permanent background history is available to the public it will give defrauded investors a tool which they can use in pursuing dishonest brokers.
If you would like to check the background information on your financial advisor, you can visit: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm
If you have questions about trading in your account, or believe that you are the victim of securities fraud, The White Law Group can help. To speak to a securities attorney, please call our Chicago Office at 312-238-9650 for a free consultation.
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