Squelching ‘Cockroach’ Brokers
The Financial Industry Regulatory Authority Inc. (FINRA) recently barred 10 brokers for moving from one problem securities firm to another while committing securities violations. This practice is called cockroaching.
Broker Misconduct
Barbara L. Desiderio, president of the now defunct New York City-based broker-dealer, Global Arena Capital Corp., was barred from the brokerage industry. Regulators claim that Desiderio and five of the firm’s brokers used misleading sales pitches, churning of accounts and other abuses.
Two branch managers at Global Arena were barred from serving in a principal capacity, and two others brokers were barred for failing to cooperate with FINRA’s investigation.
According to a FINRA statement, the regulatory authority took action after it identified a group of seven brokers whom it placed on heightened supervision when they left HFP Capital Markets, which FINRA later expelled, to join Global Arena.
FINRA accused Global Arena of being a boiler room-type operation in which brokers made high-pressure sales calls to sell junk bonds and other securities. According to FINRA, senior brokers would direct junior brokers to use misleading scripts and high pressure rebuttals when customers expressed reservations about purchasing recommended securities.
The suit also alleges that Global Arena president Ms. Desiderio knowingly allowed her brokers to engage in fraud, deceiving customers about the firm’s activities and concealing evidence from FINRA. Excessive markup and markdown fees meant that customers paid higher-than-normal fees for trades.
Cockroaching
The practice known as cockroaching enables brokers to stay in the securities industry by moving between risky or expelled firms while committing securities violations.
Andrew Stoltmann, a plaintiff’s attorney, notes that this case is a crackdown on the securities industry cockroaches who have been infecting the securities industry for the past last 50 years.
Canceled FINRA Registration
Global Arena withdrew its FINRA registration in June, and the agency canceled Global Arena’s membership in July for failing to pay about $50,000 in fees.
In its annual Focus report filed with the Securities and Exchange Commission (SEC), Global Arena disclosed that it is facing six arbitration claims from customers, five of which were over $1.5 million. The firm disputes the merit of the claims.
Susan Axelrod, FINRA’s executive vice president of regulatory operations said that the agency carefully monitors broker migration, particularly when brokers move in groups from an expelled or high-risk firm to other securities firms.
She said FINRA will continue to leverage its data to expedite sales practice examinations and enforcement investigations to rid the industry of individuals who prey on vulnerable investors.
A great way to find out if a broker is guilty of cockroaching is the use FINRA’s free online BrokerCheck.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.
Source: Investment News