FINRA’s BrokerCheck Full Of Holes


FINRA’s system for revealing red flags about brokers may not disclose all the information that it is supposed to, according to a Wall Street Journal article by Jean Eaglesham and Rob Barry (March 7, 2014).  A report by FINRA’s BrokerCheck should include information about felony charges and convictions, personal bankruptcy petitions filed within 10 years, and investment-related civil actions and proceedings.

The WSJ cited a study conducted by the Public Investors Arbitration Bar Association (PIABA) that showed the required information is often missing on BrokerCheck, even though the same information was often available on state databases.  The PIABA study also pointed out that neither FINRA nor the brokerage firms check the information submitted by the brokers themselves.

Even if the BrokerCheck system worked perfectly to provide completely accurate reports, FINRA’s rules do not require brokers to disclose every detail about their backgrounds.  For example, a broker does not need to reveal information about misdemeanor convictions, tax liens, and failed license exams.  The flaws in the BrokerCheck system should make investors hesitate to rely solely on a BrokerCheck report.

According to an article in InvestmentNews by Mark Schoeff Jr. (April 21, 2014), FINRA is considering changing its rules to expand the scope of a BrokerCheck report and to verify the information submitted by brokers.  These changes would give investors a clearer picture of the people to whom they entrust their money, but the changes are not yet in place.

Page Perry is an Atlanta-based law firm dedicated to protecting investor rights.