Targeting Rogues in White Collars : SEC calls for crackdown on stockbroker fraud
A sorry pattern of lax oversight and inadequate disciplinary action against unscrupulous stockbrokers has cost many an individual investor. Too many. Now the Securities and Exchange Commission has wisely called for tougher regulations to weed out the rogue stockbrokers who habitually defraud customers in different ways to pad their own pockets.
SEC Chairman Arthur Levitt Jr. said last week that the agency will beef up enforcement efforts against brokerages and brokers to crack down on unethical brokers. Also, in an effort to prevent conflicts of interest among brokers, he appointed a blue-ribbon panel to make recommendations on changing the traditional way they are compensated. The current payment of commissions and bonuses often tempts brokers to push sales at the expense of client interests.
The SEC is taking a tougher stand after completing a two-year investigation of broker sales practices at nine large securities firms. The SEC found problems at three of the firms and said that a quarter of the 161 office inspections conducted during the investigation turned up evidence of wrongdoing. Those cases have been referred for further investigation and possible disciplinary action. The illegal activities included unauthorized trades, excessive trading to generate commissions for brokers, putting customers in unsuitably risky securities and improperly switching customers from one mutual fund to another.
The probe, the first of its kind, was triggered by a 1992 investigative series about rogue brokers by Times staff writer Scot J. Paltrow. The reporting revealed that Paine-Webber, Prudential Securities and several other well-known Wall Street firms hired and kept on brokers who had long records of lawsuits, arbitration cases, customer complaints and disciplinary action. The series pointed out that the SEC itself seldom brought cases against brokers and firms for cheating individual investors.
To put more muscle in enforcement, Levitt called for regulatory and legislative changes to hold management and the brokerages themselves accountable for employing brokers with a his- tory of problems. Among the SEC recommendations: providing for more inspectors and increasing the frequency of routine inspections by the SEC and stock exchange examiners and giving enforcement authorities the right to ban brokers from the industry for life.
Certainly most stockbrokers operate within proper limits. But those who play outside the rules make easy prey of unsuspecting investors. Regulatory changes are needed to stop such abuses.
