April 16, 2009
I am an attorney who represents investors in FINRA arbitration cases. I am writing in support of the proposed rule regarding changes to Forms U4 and U5. Such changes are long-overdue and would close a loophole that currently allows brokers with tainted records to continue to victimize investors even after their earlier misdeeds became known to the market regulators.
In FINRA arbitration claims that I and my colleagues file on behalf of investors victimized by a broker-dealer’s registered representative, we sometimes choose to name solely the broker-dealer as a respondent in the statement of claim. One case when we do so is where the registered representative has temporarily left the industry and is no longer registered with FINRA. In virtually all claims against broker-dealers, we do mention by name the registered representative, and include his CRD number.
Under the current reporting rules, if such a registered representative moves to a new broker-dealer, or decides to re-enter the industry and re-register with FINRA, his record will not automatically reflect the fact that he was accused of violating FINRA rules, in the arbitration case filed against his former broker-dealer. In effect, this loophole allows that “loose gun” rep to continue to victimize other investors, while having a clean record. A diligent investor who would want to check that broker before doing business with him would go to FINRA’s brokercheck system, and would find nothing in the broker’s record. FINRA’s rules are supposed to prevent exactly that.
In the era of Maddoffs and countless other financial predators looking for their next victim, the financial industry regulators should strive to accomplish more, not less, transparency. This long-awaited, proposed change to the current U4 and U5 reporting system should be passed without delay.
Alin L. Rosca
Attorney at law
John S. Chapman & Associates, LLC