WASHINGTON, Aug 12 – The securities industry, led by the Securities Industry Association, points with pride to its own research showing that complaints against brokers are down. But industry regulators have different statistics. Even so, many of those involved in securities enforcement say improved safeguards help protect people from unscrupulous brokers, unethical firms and scam artists.
ONE UNFORTUNATE investor is radiologist Clark Gardner. The doctor says he lost $184,000 through broker mismanagement. He sued the brokerage firm – the now defunct Stratton Oakmont – and won in arbitration but is still waiting for the money.
Barry Goldsmith is the top enforcement official at NASD-R, the regulation subsidiary of the National Association of Securities Dealers that oversees all brokers and broker dealers. Goldsmith is a respected litigator who used to work at the Securities and Exchange Commission.
He said that two years ago, NASD Regulation expelled Stratton Oakmont from the securities association. “We sued 33 representatives of Stratton Oakmont in addition to the firm’s president and head trader, whom we barred from the business in December of 1996,” said Goldsmith.
It’s a step in the right direction for the securities official and his team. Two years ago the NASD was the recipient of stinging criticism from the SEC. The issue: That the NASD was lax in enforcing its own price collusion rules for brokers. As part of a settlement, NASD vowed to spend $100 million over five years to beef up enforcement
These days, NASD Regulation reports that its budget is up 45 percent over the last three years and staffing has increased 32 percent, to 1,650 employees.
The extra money and manpower has produced notable accomplishments: 428 brokers were barred for life last year. In 1997, investors filed 5,000 complaints with NASD Regulation. As a result more than 1,000 new disciplinary actions were taken. NASD regulators can also point to success against more than half a dozen companies involved in what the NASD said was microcap stock fraud.
“I don’t think there is a regulatory quick fix that will eliminate bad brokers from this industry,” said Goldsmith.
He said his agency is approaching securities fraud from a number of fronts. Measures include NASD rule changes to combat fraud, control “cold calling,” win temporary cease-and-desist authority and increase phone call taping. The agency also has new unit: the criminal prosecutions assistance group helps coordinate criminal prosecutions nationwide.
Other reforms under way include the Netwatch project, to heighten surveillance of Internet transactions. Part of the project is a much delayed redesign for the NASD Regulatory Web site to speed up the delivery of broker background information to the public.
The NASD is also making changes in its arbitration process. U.S. brokerage customers typically sign away the right to sue and NASD arbitration is where more investors go to file complaints. (It’s in the fine print when investors open a brokerage account)
The NASD is overseen by the SEC – which brings 500 civil enforcement actions each year. The SEC’s Richard Walker, director of enforcement, says it takes the collective efforts of the NASD, his agency and others to address securities fraud.
“We are sort of a full employment agency in good times and bad. We see things differently during those times and I wouldn’t want to send the wrong message that investors shouldn’t have confidence in our market. If I send out any message it would be that investors should be thoughtful and careful with their money,” he said.