BrokerCheck Archives - Stoll Berne | Attorneys | Class-Action, Securities, IP, Real Estate, Business Litigation

In Regulatory Notice 21-09, FINRA announced the adoption of new supervision and disclosure rules for brokers with a significant history of misconduct and the firms that employ them. Of particular interest to investors, FINRA amended BrokerCheck Disclosure requirements in Rule 8312 to improve disclosures relating to the Taping Rule, Rule 3170 (Tape Recording of Registered Persons by Certain Firms). The Taping Rule requires firms with a specified number of registered persons who previously worked for disciplined firms to have certain supervisory procedures intended to protect customers from fraud and improper sales practices. As the name of the rule suggests, a taping firm must have procedures to record phone calls between registered persons and potential customers or customers. The recordings must be maintained for at least three years.

Previously, FINRA would only release information about whether a firm was a taping firm in response to a phone inquiry to BrokerCheck. This limitation on disclosure meant that anyone searching a firm on BrokerCheck via the internet would not have access to information about whether a firm was a taping firm. Amended Rule 8312(b) now requires FINRA to make taping firm status available through a BrokerCheck web search. According to FINRA, that information will be displayed in the BrokerCheck summary section and will include, “This firm is subject to FINRA Rule 3170 (Taping Rule).”

Regulatory Notice 21-09 also announced other new rules and changes to existing rules. While an appeal of a disciplinary decision is pending, new Rule 9285 requires firms to adopt a heightened supervision plan for a broker found to have violated a statute or rule. The heightened supervision of the broker must address the violations found in the disciplinary proceeding.

FINRA also amended Rule 9522, a rule relating to a firm associating with a person who is disqualified from engaging in the securities business under the Securities Exchange Act of 1934. The amendments require a firm that applies to continue to associate with a disqualified person to have a heightened supervision plan that remains in place while FINRA reviews the application.

Bloomberg reported about a wealthy 93 year old who brought constructive fraud, abuse of fiduciary duty, and other claims before FINRA against J.P. Morgan Securities, LLC and previously registered brokers and investment advisers Evan Schottenstein and Avi Schottenstein. Evan and Avi had been registered through J.P. Morgan. They were also the claimant’s grandchildren. A FINRA panel awarded the claimant approximately $19 million against the bank and brokers.

According to the description of the dispute on Evan Schottenstein’s BrokerCheck report, the “causes of action relate to the allegedly unauthorized purchase and/or sale of various securities in Claimants’ account, including, but not limited to, multiple auto-callable structured notes and various other securities for which Respondent J.P. Morgan Securities, LLC was a market maker, as well as initial public offerings (IPOs) and follow-on offerings (FPOs).” This description leaves out, as reported by Bloomberg, that when Evan and Avi joined J.P. Morgan and brought their grandmother’s account with them, the account was so valuable to J.P. Morgan that it gave one of the brothers a $1.5 million signing bonus.

If you suspect someone you know is the victim of financial elder abuse, the National Council on Aging may be a good resource. According to the National Council, 1 in 10 adults aged 60 and over have experienced some form of elder abuse. As was true in the case in the Bloomberg article, the National Council says that in nearly 60% of elder abuse and neglect cases, the perpetrator is a family member.

The Oregon Department of Justice has free resources and instructions about how to report elder abuse here.

Investors have access to free electronic search tools through self-regulatory organizations, federal, and state regulators to research investment firms and professionals. This post describes several free tools that give access to information beyond what you can learn using Google and other search engines.

FINRA’s BrokerCheck is a good starting place to learn about registration and reported discipline. BrokerCheck allows you to search for an investment firm or professional by name or CRD number. BrokerCheck will tell you whether a firm is a broker or an individual is a registered representative regulated by FINRA. If regulated by FINRA, a BrokerCheck search will include information about reported disclosures, such as arbitrations or customer disputes, and provide information about registration. Click on the “Detailed Report” link—as the name of the link implies—for more detailed information, including summaries of any complaints. Also, keep in mind that through expungement, a broker can ask FINRA to remove customer complaints and arbitrations from records available through BrokerCheck. This means that an expunged complaint will not show up in your BrokerCheck search. Further, customer complaints are not always timely reported and may be missing from BrokerCheck.

FINRA also provides a free search tool for certain disciplinary actions since 2005. This search tool is available at https://www.finra.org/rules-guidance/oversight-enforcement/finra-disciplinary-actions-online.

If a firm is registered as an investment adviser or an individual is registered as an investment adviser representative, searching for the firm or individual using BrokerCheck will provide you with a link to the SEC’s Investment Adviser Public Disclosure website. For investment adviser representatives, the SEC’s Investment Adviser Public Disclosure search provides information similar to what FINRA makes available about brokers and registered representatives using BrokerCheck. For investment adviser firms, the SEC’s search tool gives access to the firm’s Form ADV, brochure, and Form CRS. These documents include information about an investment adviser’s business, including information about fees.

You should also check with the division in your state that regulates investment advisers. Some state regulators make available free information about investment advisers licensed to conduct business in the state. For example, the State of Oregon provides a free search tool that gives access to limited license information here: https://www4.cbs.state.or.us/ex/dfcs/dfcslic/adviser/.