The SIPA

The Blog Of The Securities Industry Professional Association
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Broker Protection Reform Needed

Its time to protect the reps from theft

 On a monthly basis it seems we read another story about how the owner of a B/D shut his doors, filed a BD withdrawal and then decided to keep last month’s entire production and not pay out their brokers.  In a recent case a Firm owner from Florida with over 100 brokers deiced to file a BDW because he was going to be suspended by FINRA.  Prior to initiating an appeal to the NAC he also kept nearly 1 million in brokerage commissions.  The BD Exchange and the SIPA received frantic phone calls from brokers across the country asking for help or an attorney referral.  Last week we received a call from a broker in NY who runs a very profitable office.  The firm he was having financial difficulty but he still expected to be paid.  Instead right before New Years the firm decided to keep his entire branch’s production ($500,000) and is now looking for a new firm while at the same time figuring out his legal options.

For some reason FINRA and the SEC have largely ignored the money of the brokers while concentrating on investor protection, but should they? Stealing is still stealing no matter who the victim is.  Mugging a little old lady of her social security check is the same as mugging a hedge fund manager on Wall Street but for some reason we often just look the other way when a broker is defrauded or stolen from.  If an elderly couple asked for their $50,000 to be released and a brokerage firm said “ No, we are keeping it” the place would be sealed with yellow tape within an hour and SEC, FINRA and the FBI would be on the scene and a handcuffed owner of the firm would be taken away. (Unless your name is John Corzine).  For some strange reason when a brokerage firm decides to just keep (steal) a million dollars in production from their staff there is kind of a shrug and a “that sucks for you attitude”.    When a firm steals money from a client they call it theft, securities fraud and will file all sorts of criminal charges but when they steal from a broker they call it “a contractual dispute” that you should spend five years arbitrating.   There are many instances when a firm is right for holding back the brokers commission, particularly when there is an outstanding lawsuit or complaint.  However when an owner of a firm just takes a million and basically tells the brokers to sue for it back the system is broke.   A broker who is owed $250,000 will certainly sue the owner and hope that he doesn’t declare bankruptcy. But the guy who is owed $25,000 or less will basically lose money suing the owner for this amount by the time lawyers and arbitration fees and charges are added to the mix.

We believe that when an owner pulls this it should be treated the same as if he stole from a client.  A TRO should be entered by FINRA or the SEC and the money should be placed into an escrow account and then let a judge decide where and when to distribute.  One of these sleazy owners may decide its not worth it to take the broker’s money if they know they will have to appear in court and explain their actions and have lengthy legal bills.  The SIPA will be sending a letter to the small firm board members and the Small Firms Advisory Board (SFAB) and ask them to explore protection for brokers who have done nothing wrong and had their money taken from them.   Whats your opinion? Please giver us your feed back so we may include it.

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Date
January 10th, 2013

Author
jbusacca




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