Posted in: Senior Investors |
I was recently interviewed in connection with the criminal indictments that were brought against David McFadden, a broker who was disciplined for bilking elderly investors out of their retirement savings. My comments are part of an article entitled, ”Brokers Could Face New Penalties For Misleading Clients," which appears in the May 12, 2009 issue of the Wall Street Journal.
It certainly is rare for stockbrokers to face criminal prosecutions for misleading investors. Thus, the felony prosecution that is being pursued by the U.S. Attorneys office in Louisiana is undoubetedly newsworthy.
Based on my conversations with the reporter, Jessica Papini, the conventional wisdom seems to be that that such prosecutions are likely to deter brokers. But I am not so sure. The very fact that the McFadden prosecution is newsworthy suggests just how rare such prosecutions are. The whole story has a certain man-bites-dog quality. Thus, my sense is that the risk-taking, sales-oriented people who populate the typical brokerage firm will dismiss this case as an aberration. In fact, they are likley to look at the egregious facts of the McFadden case and correctly conclude that they can take many liberties with their clients’ money before they are even within shouting distance of a criminal investigation.
A single prosecution, even one that is highlighted in the Wall Street Journal, isn’t going to chnage the culture and financial incentives that make investor abuse so commonplace.
For the sake of investors, I hope that I will be proven wrong. I would be happy to be proven wrong, but I’m not holding my breath. And neither should you.
