SometimesaStreet of Broken Dreams : Unethical stock brokers rate Washington probe
Building a nest egg takes discipline and prudence and carries a certain amount of risk. In these days of low interest rates, many savers are taking their money out of low-bearing bank accounts or certificates of deposit and plunking it into the stock market in hopes of earning better returns. But beware, small investors: The vagaries of the market may not be the only risk. Although the vast majority of brokers is honest and dedicated to the interest of clients, a small number are unethical.
A six-month investigation by Times staff writer Scot J. Paltrow revealed abuses by brokers at some of Wall Street’s biggest and best-known investment houses, including Shearson Lehman Bros., Paine Webber Inc., Dean Witter Reynolds and other top-ranked firms. In a series of articles, Paltrow revealed hefty arbitration awards in favor of customers who had been victimized by unauthorized and frequent trades, fraud and misrepresentation by their brokers. Even when brokers were caught, they were given light punishment and allowed to stay on as brokers or were promoted to managers.
Since The Times’ disclosures, the Securities and Exchange Commission has sent letters to at least nine major Wall Street firms requesting information on their brokers who “have been or are the subject of multiple customer complaints, lawsuits or arbitrations. . . . “ The SEC has not opened a formal investigation but is expected to decide what action, if any, to take after receiving responses to its inquiry.
For years, the securities industry has been left largely to regulate itself because the SEC has focused its enforcement efforts on insider trading and big securities fraud and stock manipulation--as in the case of the junk bond operation of Michael Milken--or on violations by smaller firms that specialize in penny stocks.
The industry’s self-policing system has been slow to process complaints and lenient on supervisors and higher executives who have failed to exercise enough vigilance to prevent wrongdoing by their brokers. Last October, the National Assn. of Securities Dealers set up a toll-free hot line for investors who wanted to determine whether a broker had a history of customer complaints. But Paltrow found the hot line often gave false or misleading information.
In California, individual stock brokers are not even licensed.
The industry has obviously failed to provide mechanisms to weed out stockbrokers who repeatedly cheat individual investors. William R. McLucas, the SEC’s enforcement chief, has said that too often bad brokers are “a fact of life.” His job should be to make them history.
