Posted in: Greedy Brokers | Risky Investments |
As many experts will say, the best way to protect investors against broker fraud before it happens is to do the homework on brokers. Before investing with a financial advisor, look to FINRA for a broker’s disciplinary history. But what if FINRA’s facts are misleading?
An article in the Wall Street Journal points out how FINRA’s disciplinary information related to certain brokers can be vague and incomplete, which may lead to investors trusting bad brokers in the future.
The article, (which can be viewed in its entirety here) tells of the $7 million arbitration award against former broker Gary J. Gross, who had worked at Axiom Capital Management in Florida. While working at Axiom, Gross engaged in what FINRA now calls a string of “unlawful activity,” which included deliberately selling risky investments and then fabricating statements to conceal losses.
Back in December 2002, Gross was “permitted to resign” from his then-firm, UBS Painewebber. In FINRA’s disciplinary report of Gross, it said the resignation resulted from “review of compliance with firm policies and standard business practices.”
For those working inside the securities industry, “permitted to resign” is a red flag because it means the brokerage firms do so to save money. A bad, or disgruntled broker who is permitted to resign has a much harder time suing their former employer for wrongful defamation.
But for investors, it isn’t nearly good enough of a warning.
The majority of Gross’ 41 customer disputes came after being permitted to resign from UBS, and after joining Axiom in the same month.
Yet again it appears as if the needs of the investors were the last to be addressed. While at UBS, Gross allegedly caused over $500,000 in damages to customers resulting from unsuitable mutual funds–these customer disputes were settled by the firm, so FINRA omits most of the details from their report on Gross. UBS was able to dispose of their bad broker while saving face, and Gross was given the opportunity to become a repeat offender.
FINRA is a self-regulatory agency, run by industry insiders, which is why they have granted leniency to too many past brokers. In the process, they also make it harder to prevent broker fraud from occurring.
Investors need independent, competent, expert advice with regards to bad brokers. Certainly for those who have already fell victim to investment fraud, it is important to consult attorneys who can attack these brokers head-on.
