Stockbrokers, or more accurately, their employer brokerage firms are required to report to The Financial Industry Regulatory Authority (FINRA), when their stockbrokers are the subject of customer complaints alleging sales practice violations, criminal actions, bankruptcies, or their conduct forms the basis of an arbitration or civil action by a public customer against the broker or brokerage firm in excess of $10,000 or any case that was settled in excess of $15,000.
For example, after May 18, 2009, stockbrokers were required to disclose whether they have “Have you ever been the subject of an investment-related, consumer-initiated arbitration claim or civil litigation which alleged that you were involved in one or more sales practice violations, and which: (a) was settled for an amount of $15,000 or more, or (b) resulted in an arbitration award or civil judgment against any named respondent(s)/defendant(s), regardless of amount”
Information disclosed by brokerage firms concerning the regulatory history and history of complaints and legal actions against their brokers is available to the investing public at no charge on FINRA’s Broker-Check. According to FINRA, in 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records.
However, if firms do not disclose these matters to FINRA. members of the investing public will not be able to see if their broker or prospective broker has been the subject of customer complaints, regulatory actions, criminal actions, bankruptcies, or lawsuits.
In this case, what you do not know may hurt you, but also what you do not know may be good for their business.
FINRA Censured & Fined Firms
Yesterday, FINRA announced today that it censured and fined Merrill Lynch, Pierce, Fenner & Smith Inc. $500,000 for supervisory failures that allowed widespread deficiencies in filing hundreds of required reports, including customer complaints, arbitration claims, and related U4 and U5 filings, and for its failure to file the required reports.
FINRA’s Censure of Merrill Lynch
FINRA in its censure of Merrill Lynch, appeared to be concerned because “these violations may have hampered investors’ ability to assess the background of certain brokers” and “also may have compromised firms’ ability to conduct background checks when making hiring decisions, reduced the ability of securities regulators to review brokers’ transfer applications and hindered FINRA from promptly investigating certain disclosure items.”
According to the FINRA censure, from at least 2007 through 2011, Merrill Lynch failed to file and/or timely file with the NYSE and/or the NASD/FINRA in excess of 650 required reports with respect to: (a) customer complaints involving allegations of theft or misappropriation of funds or securities, or forgery; (b) customer claims for damages settled for an amount exceeding $15,000 against Firm employees or $25,000 against the Firm.
FINRA also found that Merrill Lynch failed to make or timely make the required filing between 23% and 63 % of the time.
In addition, from July 2007 through September 2010, FINRA found that Merrill Lynch also violated NASD Rule 3070(f) by failing to file or timely file copies of approximately 300 non-NASD/FINRA arbitrations and civil and criminal complaints that it received. In those cases where they were required, the Firm also failed to file or timely file related Forms U-4 and Forms U-5 between 28% and 79% of the time.
Most astonishingly, during two distinct time periods from July 1, 2007 through June 11, 2009 and again from October 24, 2009 through February 22, 2010, Merrill Lynch failed to make 100% of required NASD Rule 3070(f) filings, and failed to file copies of all non-NASD/FINRA arbitrations and civil and criminal complaints received during the two-year period from July 1, 2007 through June 11, 2009 and for the four-month period from October 24,2009 through February 22, 2010.
Accordingly, if your broker or prospective broker had been named in any of these actions, there would be at least a 50% chance you would not know about it.
Merrill Lynch’s Prior Reporting Failures
Such is not new at Merrill Lynch, and this is not the first time Merrill Lynch was found to have failed to report customer complaint information. In June 2000, a New York Stock Exchange Hearing Panel found that Merrill Lynch failed to report certain statistical information regarding customer complaints; and failed to establish and maintain adequate procedures and controls regarding the reporting of complaints. The firm consented to a censure, a $250,000 fine and an undertaking to perform a review of its systems and procedures in the area of reporting of events to the NYSE.
In July 2005, another hearing panel found that Merrill Lynch failed to report and/or promptly report certain reportable matters as required by NYSE Rule 35(d) including to report, timely report and/or accurately report statistical infonnation regarding customer complaints. There Merrill Lynch consented to a censure, a $10 million fine and an undertaking, (although the fine also included other misconduct).
Again, in 2008, Merrill Lynch consented to findings that it violated NYSE Rule 35(d) by filing an inaccurately reporting customer complaints in violation of NYSE Rules and NASD Rule 2110. There, Merrill Lynch consented to a censure and a $75,000 fine.
In fact, in August 2011, we obtained an arbitration award on behalf of a Connecticut man for one hundred percent (100%) of his net out-of-pocket compensatory losses, plus interest at the rate of 6% per annum over a period of approximately three years, together with attorney’s fees, relating to the conduct of his former stock broker, Saly Ann Glassman, of the Blue Bell, Pennsylvania office of Merrill Lynch Pierce Fenner & Smith, Inc.
However, even as of today, this Arbitration Award does not appear on Ms. Glassman’s Public Disclosure Records under “final consumer initiated investment related civil suits or arbitrations containing sales practice violations against the broker that resulted in an arbitration award or civil judgment for the customer, but instead appears on her Public Disclosure Record as being “closed without action, withdrawn or denied.”
And why not? According to her website, she “has been listed consistently in the top third of Barron’s 100 Best Brokers. She is listed #1 in the 2008 Top 100 Woman Financial Advisors, and in 2009 a state by state ranking is listed #1 for the Commonwealth of Pennsylvania.” According to Merrill Lynch’s website, Saly Ann Glassman’s “practice is ranked #1 in the Philadelphia Complex, and was ranked the 2nd largest practice in Merrill Lynch for 2009. She invests more than $1.5 billion for high net worth individuals, corporations, and institutions.”
Guiliano Law Group
If you have been the victim of securities fraud you should consult with a litiagtion attorney. The practice of Nicholas J. Guiliano, Esq., and The Guiliano Law Group, P.C., is limited to the representation of investors in claims for fraud in connection with the sale of securities, the sale or recommendation of excessively risky or unsuitable securities, breach of fiduciary duty, and the failure to supervise. We accept representation on a contingent fee basis, meaning there is no cost unless we make a recovery for you, and there is never any charge for a consultation or an evaluation of your claim. For more information contact us at (877) SEC-ATTY.