If you’ve been on another planet during the past two weeks, Facebook Inc (NASDAQ:FB) reported that the company’s data network was hijacked by a “political intelligence” firm posing as an academic researcher and used captured data of 50 million Facebook users to launch a Trump-friendly advertising campaign in the weeks and days leading up to the 2016 Presidential election. We know how that worked out. Well, according to a whistleblower, it appears that US securities industry self regulator FINRA left its back door wide open too.

Per Bloomberg reporting, “..A whistleblower is accusing some key financial regulators of allowing sensitive broker information to become readily accessible, even as industry watchdogs emphasized the need for companies to protect client data.

According to a complaint lodged with the SEC, personal data such as brokerage account numbers provided to an industry-funded regulator have long been easily accessible online. Separately, Social Security numbers and other information meant to be kept private also was made publicly accessible by state regulators for years up until 2015, according to the complaint, which was reviewed by Bloomberg News.

At issue is material on brokers and their firms gathered by FINRA and other regulators to help clients keep tabs on the people handling their money. To spot potential red flags, the SEC encourages investors to search the data that’s housed in the sprawling Central Registration Depository of more than 3,700 broker-dealers and hundreds of thousands of people authorized to work in the securities industry.

Some of that information, which is used in FINRA’s BrokerCheck online portal and passed on to state authorities, has been mishandled, said the whistle-blower who asked not to be identified in discussing the allegations for fear of reprisals.

While both FINRA and the North American Securities Administrators Association acknowledged past problems in a response to questions from Bloomberg News, they dispute any contention that they’ve been negligent in efforts to clean-up the disclosures.

The issues shed light on the massive back-office systems maintained by regulators and the difficulty of keeping the sensitive information in them private. There is so much data that FINRA has a team of more than 30 people who review filings and runs hundreds of automated queries to look for information that shouldn’t be made public.

“They’re sitting on top of an even larger amount of private data than the firms they regulate,” said Donald Langevoort, a professor at Georgetown University Law Center in Washington. “There is an immense amount of cynicism about the ability of any institution public or private to do a good job at safeguarding privacy.”

Concern over financial regulators’ ability to safeguard data led to congressional hearings last year after the SEC revealed that hackers broke into its corporate filing system and accessed two people’s names, dates of birth and Social Security numbers. That disclosure followed a massive breach at Equifax that may have led to the theft of personal data on about 150 million Americans.

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Most people expect the food in a three-star restaurant to be tastier than one-star grub and a two-thumbs-up movie to be better than a flick that got a solitary upward-pointing thumb. Good luck, however, finding a handy way to rank stockbrokers.

That needs to change, because new research shows the most valuable information about brokers emerges only when you can compare them and their firms industry-wide.

The Financial Industry Regulatory Authority, which oversees how investments are sold, maintains BrokerCheck, a database and website that provides information on nearly 1.27 million current and former brokers. A study by Finra last fall found that BrokerCheck data could reliably predict which brokers are most likely to harm their clients.

And so you could, if you had open access to all the data Finra collects on BrokerCheck. But, contends a new report, the regulator keeps such a tight hold that the service doesn’t tell investors what they need to know.

The vast majority of brokers are hardworking, honest folks who have no customer complaints on their records.

But those who have been active since before 2000, and those whose colleagues have a history of misconduct, are much more likely to generate complaints from customers, according to the new analysis.

Those insights emerge only from analyzing oceans of data on brokers and their firms — an absurdly impractical task for ordinary investors looking up BrokerCheck records one at a time.

How much should you worry if a broker settled a complaint for $25,000? Are four arbitrations in 27 years a lot or a few? Have 13 out of 14 of the other employees in your broker’s office had complaints lodged against them? There’s no way outsiders with conventional computing power can tell. Nor can investors readily figure out which firms have the most employees with marks on their records.

And that matters — a lot — because taking advantage of clients seems to be contagious.

Brokers whose colleagues have spotty track records end up harming investors much more often, the new report says.

An unrelated recent study, which looked at some 150,000 brokers at nearly 1,000 firms, found that in the wake of a merger between firms, the average broker becomes over one-third more likely to incur customer complaints if his or her new brokerage colleagues have a history of misconduct.

Yet another analysis, released last month by economists at the University of Minnesota and the University of Chicago, found that brokers with a history of complaints were snapped up by other firms rather than being driven out of the industry.

So, before hiring a broker, you should know the disciplinary record of his or her colleagues. Even a report from Finra itself last fall drew a similar conclusion.

The latest study was conducted by Securities Litigation and Consulting Group, a research firm in Fairfax, Va. Part of its business is providing expert-witness testimony in arbitration proceedings against brokers and their firms. Still, “my incentives don’t change the arithmetic,” says SLCG founder Craig McCann, a former economist at the Securities and Exchange Commission.

The study bases its analysis on Finra’s own standards for judging whether investors were harmed; it replicates several of the regulator’s findings from last fall almost exactly. Finra’s chief economist, Jonathan Sokobin, says the SLCG report “essentially validated our results.”

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According to coverage from BankInvestmentConsultant.com, FINRA’s board of governors is expected to look internally and externally for a successor.

Ketchum has been a critic of the Department of Labor’s proposal for a fiduciary standard for the wealth management industry. In May, he warned that the proposal comes with inadequate guidance to help firms navigate conflicts and ensure that they are engaging in appropriate compensation models when serving retirement plans or individual investors.

BrokerDealer.com maintains the global financial industry’s most comprehensive database of broker-dealers operating in more than 30 countries across the world.

Ketchum, 64, came to FINRA in 2009 from the New York Stock Exchange, where he was CEO of NYSE Regulation, and in the aftermath of the financial crisis. The industry veteran’s career includes 14 years with the SEC, where he was director of the Division of Market Regulation for more than half of his tenure with the agency.

“He worked tirelessly to protect and educate investors while also improving the integrity of the markets,” SEC Chairwoman Mary Jo White said. “Investors are better protected and our markets are stronger because of Rick Ketchum.” Ketchum continues to serve as a member of the SEC’s Market Structure Advisory Committee.

FINRA’s lead governor, Jack Brennan, praised Ketchum “as a champion of initiatives such as the High Risk Broker program, improvements in BrokerCheck, the expansion of TRACE reporting of asset-backed securities, and the expansion of FINRA’s responsibilities across stock and options trading.”

During his tenure at FINRA, Ketchum said in a statement that the organization’s accomplishments were based on a “commitment to excellence in our core competencies: examinations, enforcement, rulemaking, market transparency and market surveillance.”

“Investor protection is our principal reason for being, and I have been honored to work with an incredibly dedicated and talented group of professionals who take this vital mission seriously,” he said.

SIFMA CEO Kenneth Bentsen Jr. said Ketchum was at the forefront of every major milestone in the evolution of the U.S. securities markets over the last 40 years. “He has made his mark in ensuring a robust, efficient and pro-investor marketplace, and we wish him all the best in his retirement,” Bentsen said.

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Under the rule, a brokerage will have to include a “readily apparent reference and hyperlink” to BrokerCheck on a homepage that is initially viewed by retail investors. It also would have to include links to the database on profile pages of individual brokers.

The rule will go into effect no later than 180 days after the SEC approval order is published in the Federal Register. It’s not clear when the order will appear there.

BrokerDealer.com provides the world’s largest database of registered broker-dealers operating across 35 countries worldwide

To read the entire story, published by InvestmentNews.com , please click here

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Finra launched an advertising campaign on Monday to encourage investors to research their brokers before hiring them, but some industry observers said Finra’s database doesn’t provide enough information.

BrokerDealer.com provides a global database of broker-dealers registered in the US as well as those performing brokerdealer services in upwards of 30 major countries throughout the world.

The digital, print and television ads promote BrokerCheck, an online database managed by the Financial Industry Regulatory Authority Inc. The database provides employment and disciplinary history about brokers, as well as their certifications and licenses.

The ads are hitting the airwaves just days after Finra submitted a rule to the Securities and Exchange Commission for final approval that would require brokers to include a link to BrokerCheck on their websites and brokers’ profile pages.

A print ad will run in Tuesday’s Wall Street Journal. Digital ads will appear on financial-news websites as well as search engines.

For the full coverage from InvestmentNews.com, please click here

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BrokerDealer.com blog update courtesy of extract from Dec 26 WSJ story by Jean Eaglesham and Rob Barry …

In what can best be described as a Faustian tale taken from Alice in Wonderland, it should be no wonder that bad apple brokers continue to prey on investors, with no thanks to the archaic system overseen by financial industry regulators, most notably the “self-regulated” Financial Industry Regulatory Authority aka Finra. WSJ reporters Jean Eaglesham and Rob Barry provide insight into the dumb data system employed by the industry’s watchdog:

Wall Street’s own national watchdog doesn’t make public all the regulatory red flags it has about brokers, prompting calls from state regulators for more expansive disclosure.

Investors checking disciplinary records from the Financial Industry Regulatory Authority, or Finra, can see that in Bennett Broad ’s 35-year career as a stockbroker, he has faced 25 customer complaints involving alleged trading abuses, and that 15 ended in payouts to clients.

What they won’t see is that a former employer, UBS AG , launched an internal investigation into Mr. Broad’s business practices back in 2003 and then, according to state regulators, “permitted” him “to resign.” At least eight of his 25 complaints involved conduct after that investigation.

Finra, an industry-funded overseer of brokers, encourages investors to check its BrokerCheck Web page to look for regulatory red flags about individual brokers, including complaints, regulatory actions, terminations for cause and personal bankruptcies. Mr. Broad’s BrokerCheck reveals neither the UBS investigation nor his resignation—even though they show up on his state regulatory record.

A Wall Street Journal examination of federal and state regulatory data revealed that a wealth of information about brokers is reported to the national regulator but not made public by it. The Journal found at least 38,400 brokers have regulatory or financial red flags that appear only on state records, which in most states aren’t available without contacting state regulators. Of those, at least 19,000 had completely clean BrokerCheck records. A comprehensive database of brokerdealers registered in the US and major countries throughout the globe is available here.

California, Nevada , Arizona, Florida, New York & NJ have highest number of bad actor brokers.

The Journal’s analysis included 6,527 registered stockbrokers with offices in Fort Lauderdale and Boca Raton, Fla., highlighted on the adjacent map. Of those, 342, or 5.2%, reported three or more red flags on their disciplinary records. For every 10 brokers in this area, there were 4.9 disclosures, 126% higher than the rate among all brokers in the Journal’s data.

Brokers with troubled regulatory records were often found in areas with wealthy, elderly populations. In this hot spot, the share of households headed by people aged 65 and up with incomes in excess of $100,000 was about 39% greater than the nation as a whole.

For the entire article from WSJ, please click here.

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Two of the three brokers recently banned were registered with JP Morgan Securities. Kirk Eric Archibald allegedly created unauthorized bank ATM cards while employed as a personal banker and then used them to make unauthorized transactions that resulted in a loss of $19,150, according to BrokerCheck and a settlement letter that he signed with FINRA.

Michael Linfeng Zheng, the other disgraced advisor from JP Morgan Securities, allegedly took an unattended bank customer’s debit card and programmed the card’s PIN on a coworker’s computer. He then used the debit card at a nearby ATM to steal $404 from the customer’s account.

Ann Maria Ferrao was with HSBC Securities. FINRA permanently barred her from the industry for allegedly misappropriating funds from clients’ bank accounts for the benefit of other clients and for her own personal benefit, according to the settlement letter she signed.

JP Morgan, which dismissed both Archibald and Zheng, did not return a call seeking comment. And HSBC, which fired Ferrao, declined to comment. Archibald, Zheng and Ferrao could not be reached.

The regulator also suspended an advisor registered with Wayne Hummer Investments, the investments and insurance arm of Wintrust Financial Corp.’s wealth management division. Arnold Steven Janickas was suspended for two years for allegedly borrowing a total of $805,000 from a customer to buy and renovate a house. Contrary to FINRA rules and Wayne Hummer’s written policies and procedures, Janickas accepted four unsecured loans in the amounts of $550,000, $75,000, $100,000, and $80,000, without notifying or obtaining approval from the firm. He repaid $444,882, leaving a loan balance of $360,118, FINRA alleges in its settlement letter with the advisor.

Click here to read the entire story

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