Wall Street Journal Investigation Uncovers “Hot Spots” Where Brokers With “Disciplinary Red Flags” Accumulate

On November 12, 2014, the Wall Street Journal reported the results of an investigation performed of broker records. The article disclosed that the paper identified 16 “hot spots” where “troubled brokers tend to concentrate,” after analyzing about 550,000 records of brokers.

The list of these 16 hot spots include: Fort Lauderdale/Boca Raton, FL; Long Island, NY; Sarasota FL; Collier/Lee Counties, FL; Treasure Coast, FL; Southern Manhattan, NY; Greater Las Vegas, NV; Eastern Maricopa County, AZ; Staten Island, NY/Middlesex & Monmouth Counties, NJ; Greater Sacramento, CA; Southern Miami-Dade County, FL; Greater San Diego, CA; Metro Detroit, MI; North L.A./San Fernando Valley, CA; Orange County, CA; and Western Maricopa County, AZ. The results of the plots on the WSJ’s map show that these hot spots appear to collect around the metro New York area, Southern Florida and Southern California.

The WSJ reported that “troubled brokers” were determined as having three or more disciplinary red flags over their career, including regulatory actions, criminal charges, client complaints, recent bankruptcies and terminations. Regulatory actions include proceedings commenced by regulators, including the Securities and Exchange Commission and Financial Industry Regulatory Authority, which generally seek financial penalties and/or temporary or permanent bars from the securities industry. The article also noted that three red flags is also three times the national average for brokers, many of whom maintain clean records.

For the metro New York area particularly, the WSJ article reported that the New York Attorney General overseas a broker workforce of approximately 95,000 brokers, including 11,000 brokers in the three hot spots identified in that area. Despite the fact that approximately 15% of all registered brokers work in New York, the NYAG assessed only $5,500 in sanctions against brokers, representing about 1% of the total sanctions assessed nationwide, the WSJ reported. The article quoted a NYAG spokesperson as stating that New York’s securities law does not provide the NYAG with review procedures or authority to “regularly examine” brokerage firms, unlike FINRA and other states.

The WSJ article also noted that there were 50% more households than average run by individuals over the age of 65 and income over $100,000 in the “hot spots” where the troubled brokers tended to accumulate. The incidence of elevated levels of brokers with three or more “red flags” in communities that also contain larger than average wealthy elderly populations is a potentially troubling phenomenon that may only become more pronounced with the ageing of the baby boomers generation. The WSJ article noted that it was hard to determine whether there is a correlation between larger than average communities of troubled brokers and wealthy elderly individuals.

The attorneys at Malecki Law represent investors who have lost money in their brokerage accounts as a result of brokers who are often driven by self-interest, including overcharging or overtrading their clients accounts, or recommending investments solely to earn large upfront commissions. If you believe you were not properly recommended investments, please contact the attorneys at Malecki Law to determine if you have a claim for damages.