September 8, 2009
Elizabeth M. Murphy
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090.
Re: File Number SR-FINRA-2009-050
Proposed Rule Change to FINRA'S BrokerCheck Disclosures
Dear Ms. Murphy:
We have had the pleasure and privilege of representing investors in NASD and FINRA sponsored securities arbitration matters for the past 17 years. We dedicate ourselves to assisting investors to recover losses as a result of broker misconduct. We take our work seriously and don't undertake representation unless we are convinced that a genuine wrong has been committed.
Over the years, FINRA proposed various rules to modify its arbitration procedures for customer disputes. This time FINRA proposes to modify the information publicly available on "BrokerCheck" regarding former Associated Persons. "BrokerCheck" is the one and only publicly available database which provides information about an Associated Person's work, regulatory, criminal, civil, and arbitration histories. The information available on BrokerCheck is sadly limited. There is much greater history about each Associated Person available to Member Firms and regulators.
Each and every Associated Person's professional history, including regulatory actions, arbitration claims, customer complaints, and employment actions should remain publicly available for life. That professional history is under the direct control of the Associated Person and is created each day he and she goes to the office and works with the public's money. That professional history is as unique as a fingerprint and it speaks volumes about a person's skill, abilities, and most importantly, integrity.
Currently, once an Associated Person is out of the industry for two years, all of his or her information vanishes from public view. No matter how successful or how terrible that person's professional history, it is lost. FINRA proposes to make a very limited sliver of information related to any "final regulatory action" available on BrokerCheck after the two year window expires.
Although this proposal is a negligible improvement from the current situation, it still leaves potentially horrible implications and consequences for the investing public. When a broker terminates his registration and does not renew it, but instead becomes involved in other aspects of financial services, his professional history is no longer accessible. When that Associated Person is a bad actor with a lengthy legal and or employment disciplinary history, the loss of that history leaves investors without critical information they can use to protect themselves.
Take for example the former Associated Person, Hitomi Tsuyuki, CRD Number 1550142. If a BrokerCheck history is run on him today, the outcome is a pithy statement "FINRA BrokerCheck - No Results". In fact Hitomi Tsuyuki was barred from the securities industry. He was also named in or the subject of multiple arbitration claims and lawsuits, is the subject of a punitive damages award for fraud, and has been in the Orange County Men's Jail awaiting trial on 200+ felony counts related to securities fraud and theft of investors' money.
Under the current proposal, the only information made available about Mr. Tsuyuki would be that he was barred from the securities industry. All of the other information would not be available. The critical question to ask is if FINRA'S mandate is to protect investors, wouldn't it make better sense to have all that information publicly available? Simply because the former Associated Person is no longer selling stocks does not mean he is not acting as an investment advisor, a loan officer, bookkeeper or any of the other myriad financial professions which require little or no professional disclosure.
Imagine for a second if Mr. Tsuyuki was not barred by the industry, but everything else on his record still occurred. Under the proposed rule change, two years after Mr. Tsuyuki left the brokerage industry, his BrokerCheck would report still nothing. How does that kind of silence help the investing public?
There are numerous former Associated Persons, just like Mr. Tsuyuki with multiple adverse arbitration awards, reported settlements, employment actions and customer complaints, but without a "final regulatory action" who are now in the financial services industry in positions of trust working with the public's money. Arbitration claims, judgments, and employee disciplinary matters are just as material as a "final regulatory action". Does someone with multiple adverse arbitration awards really deserve the trust reposed in them? Would you feel comfortable knowing your investment advisor was a former Associated Person with a lengthy troubled history? For many investors, they unknowingly have such a person working with their money. Even after FINRA'S proposal is approved, when the investing public goes to "BrokerCheck" the only comment they will receive is "no results".
Consider for a moment the issue of criminal charges and convictions arbitration claims and awards and lawsuits, and judgments. All of those are adversarial proceedings in which the Associated Person is given a full and fair opportunity to defend against the charges. FINRA'S justification for excluding this information is apparently only in regulatory matters does an Associated Person receive an opportunity to be heard. We all know that is not the case. The better question to ask is: why doesn't FINRA know this? For an entity that advertises on the television its primary mission is to protect the investing public, why is it creating a fictional argument to protect bad brokers?
FINRA already provides a mechanism to allow Associated Persons to comment on each disclosure. That means no matter what is disclosed, the Associated Person has the opportunity to rebut each and every disclosure. Rather than allow FINRA to maintain a veil of silence, let the investing public make the final decision whether to hire a professional with a lengthy negative history.
Instead of providing a lobotomized version of just the most extreme cases of discipline, we ask that FINRA provide all the information about an Associated Person's professional history. That way, every Associated Person knows that from Day One, what he or she does will have consequences not only on the clients served, but also on him or herself. There is no better way to regulate than to let the Associated Persons know their actions have life-lasting consequences, just as their actions always have life lasting consequences for their clients.
We ask the SEC to approve the proposed rule change, but also refer this matter back to FINRA with direct instructions to submit a proposal to indefinitely include the complete professional history of each and every Associated Person.
Thank you for your consideration.
Respectfully,
Jonathan W. Evans and Michael S. Edmiston