Oversight: California and New York have the most stockbrokers but the weakest regulatory systems. California ceased to license brokers in 1980.

In California, the rule for investors looking for a stockbroker is caveat emptor-- let the buyer beware.

In some states, such as Florida, Missouri and New Jersey, state regulators have taken to running bad brokers out of town, or out of business. Legislatures there gave regulators more powers in the late 1980s after concluding that the securities industry and the Securities and Exchange Commission had done too little to weed out brokers and firms that habitually cheated smaller investors.

But not in California. The two states with the most brokers, California and New York, have the weakest state regulatory systems, a six-month investigation of the retail brokerage business by The Times shows.

California regulators say they have all but abdicated regulating branch offices of the big Wall Street firms.

In addition, securities regulators in California and several other large states say that as far as they know, California is the only state that does not license individual stock brokers. After Proposition 13, the California Department of Corporations scrapped its licensing program in 1980 to save money.

The state still licenses the firms that the brokers work for. Regulators can take action against the firms for what their brokers do. But Bill McDonald, head of the California Department of Corporations’ enforcement division, says the decision to stop registering individual brokers robbed the department of an important regulatory tool. He laments that the state lacks “a licensing hook” for brokers.

That and a shortage of examiners, who make regular inspections of brokerage office books, and investigators, who look into complaints, make it easier for brokers with bad records to continue doing business in the state, he says. The staff--which includes fewer than 20 examiners compared to about 40 in Florida--is too small to keep close tabs on the 110,000 brokers who have signed up to do business in California, McDonald says.

To become a broker in California, one simply has to pass the securities industry’s standard broker’s exam and check off the “California” box on the form all brokers are required to file with the National Assn. of Securities Dealers. “It’s a notification. It’s not a registration at all,” says Maurice Cox, corporation examiner for the California department.

Cox says the department also does not routinely examine California branch offices of big Wall Street firms to see if they are complying with state securities laws. He says the department prefers to leave regulation of those offices to the New York Stock Exchange and the SEC and to use its limited resources to concentrate on the many small firms in the state that are not NYSE members.

The result is that brokers who might have been booted out if they were based in other states are able to do business in California.

Stephen T. Rangen, until two months ago a Shearson Lehman Bros. broker in Century City, has a record of repeated personal bankruptcies, a censure and fine by the National Assn. of Securities Dealers, and numerous customer complaints, lawsuits and arbitration cases against him.

Since 1987, at least three states--Florida, Maryland and Idaho--said Rangen’s record appeared to be so bad that they would turn down his license applications in those states. In each case, his employers withdrew the applications. Florida regulators, in a letter denying Rangen’s application, said: “Your disciplinary history within the securities industry constitutes prima facie evidence of your unworthiness to transact the business of associated person,” or broker.

But California has taken no action against him and is not likely to. Although he resigned from Shearson after The Times raised questions about his record, Rangen was quickly hired by the Century City office of another firm, Gilford Securities. Asked about Rangen, Cox declines to comment specifically on his record. But he says that unless another agency such as the NASD contacts the Department of Corporations about a specific broker, the department is not likely to take action. “We will follow up in certain instances, but only if it’s referred to us by another agency,” Cox says.

Rangen says he has never violated his firms’ rules and says he has never intentionally done anything wrong. Gilford’s chairman declined to comment on Rangen.

Lionel Glancy, a Beverly Hills attorney who represents customers of brokerage firms, says the Department of Corporations rarely follows up on complaints that investors file against brokers or their firms. Glancy says he wrote to the department about a year ago to complain about a Merrill Lynch & Co. broker who had sold securities that were not licensed for sale in California. He says the Department of Corporations never even acknowledged receiving the letter.

“It’s a totally weak department, considering the size of the state and the fact that California is one of the largest targets and locations for fraudulent operations,” Glancy says.

California’s laissez-faire approach to brokers is sharply at odds with trends in states such as Missouri. John R. Perkins, Missouri’s securities commissioner, says his state and others have moved to step up screening and deny licenses to brokers who have a bad record. He says the emphasis is on screening out bad brokers when they first apply for state licenses.

“We’re granting these people a license to do business in the state, and our citizens expect us to keep out people who are going to cause problems,” Perkins says.

He adds, “You end up talking to the little old lady or person in a nursing home or a farmer who has lost his life savings and say, ‘We’ll take away this guy’s license for what he did and he’ll never do it again.’ But that doesn’t get their money back.”

In Florida, state laws were beefed up beginning in the mid-1980s in response to penny stock schemes and boiler rooms that preyed on the state’s many retirees. There are about 100,000 brokers licensed to sell securities in Florida, although many are based in other states. Don B. Saxon, director of Florida’s securities division, says that since 1985, the state has denied licenses to more than 500 brokers. Denials have dropped from a high of 116 in the state’s 1988-89 fiscal year to a low of 50 in 1990-91. But Saxon says that’s because the number of applications has dropped substantially, largely in response to the state’s tougher scrutiny.

Florida’s laws are exceptionally strong. The securities division is allowed to disqualify brokers based even on pending actions by other regulators. “If you look at these people and you can tell from the record that they’re not the kind of person you’d like to deal with, they should be denied,” Saxon says.

But in New York, which like California has about 110,000 brokers signed up to do business in the state, regulation in some respects is at least as weak as in California. Lawyers who represent investors claim that the state Legislature has been unduly sensitive to the lobbying and campaign contributions of the securities industry, one of New York’s biggest industries.

Whatever the reason, New York’s system is unusual in several ways. Regulation is left to the state attorney general’s office, which devotes scant resources to the task. Securities divisions in other states, including California, have investigators and examiners on their staffs who can visit firms and ferret out violations of securities rules.

But New York has none. The entire staff of the attorney general’s Bureau of Investor Protection and Securities is made up of 11 lawyers and three paralegals.

Moreover, the bureau’s staff has no legal authority to conduct routine examinations of firms to see if they are complying with state securities regulations. Neither can the bureau act on its own to suspend a broker or firm if it finds wrongdoing. Instead, there must first be an adversarial proceeding before a state judge.