Why BrokerCheck is Flawed – Going Public Lawyer

BrokerCheck Attorney
Securities Law Blog

The Financial Industry Regulatory Authority’s BrokerCheck is a free tool available to the public that provides some information about the professional backgrounds of brokerage firms and brokers currently or formerly registered with FINRA or a national securities exchange.

It provides similar information for current or former investment adviser firms and representatives. BrokerCheck information is derived from filings by regulators, firms and the registered representatives themselves.

Through BrokerCheck, investors can:

  • Search for information about brokerage firms and brokers
  • Search for information about investment adviser firms and representatives
  • Obtain online background reports about brokers

According to FINRA, BrokerCheck includes current licensing status and history, employment history and, if any, disciplinary actions taken by the regulators, reports of customer disputes, criminal convictions, outside business activity, and other matters.

According to FINRA, BrokerCheck is an accurate and complete source of information.

But is it really?  We say NO.

Many brokers have beat BrokerCheck with minimal effort. How? He or she can simply lie.

Much of the information contained in BrokerCheck comes from the registered representatives themselves.  When brokers are initially licensed, they must fill out a Form U4.  The U4 contains the personal information described above, and must be updated within 30 days if any changes occur.  While FINRA advises brokerages to check their employees’ U4s for accuracy, some kinds of fudging may go undetected.

One former broker secretly ran a marijuana dispensary under a different name for several years.  When his employer eventually found out, he chose to surrender his license rather than be subjected to disciplinary action.  He’s now CEO of a publicly traded cannabis company and yes, he continues to conceal his disciplinary history.

In another matter, a sanctioned broker served as an officer and director of at least 20 public companies without disclosure of at least 5 disciplinary actions in which he was involved. These included not only FINRA arbitration matters and customer complaints involving fraud but also enforcement actions by two state regulatory bodies. The bottom line is that FINRA has no mechanism in place to update any information concerning its members once they cease to be registered.

According to FINRA, broker check should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.  While it’s a convenient and informative tool, it shouldn’t be the only source used.

According to FINRA’s website, the information about brokers and brokerage firms made available through BrokerCheck is derived from the Central Registration Depository (CRD®), the securities industry online registration and licensing database and includes professional background information on approximately 1.3 million current and former registered brokers and approximately 21,000 current and former registered brokerage firms.  Brokers file their U4s with the CRD.  It isn’t difficult for them to omit compromising or embarrassing information from their filings.  Neither can they be prevented from making a questionable past “disappear” with a simple name change.

While BrokerCheck is an informative tool, it is important that investors recognize its limitations and deficiencies when conducting due diligence particularly where penny stocks are concerned.

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com.   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates 
Brenda Hamilton, Going Public Lawyer
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855