Securities industry urged to tell investors to check out stockbrokers’ backgrounds

WASHINGTON (September 28, 1999) — Securities firms should tell new customers to check a regulatory database to verify the backgrounds of their stockbrokers and to see whether they’ve had serious problems with regulators, the new head of a group of state securities regulators said today.

Bradley Skolnik, incoming president of the North American Securities Administrators Association (NASAA), said brokerage firms should urge new customers to call state or industry regulators to check the Central Registration Depository (CRD), a computer database containing the licensing and disciplinary histories on nearly 600,000 securities professionals and 5,600 securities firms.

“For years, regulators have been telling investors to check the CRD, but too few actually do it. That’s why we’re calling on firms to voluntarily educate new customers about the CRD and to provide them with their broker’s CRD number.

Skolnik said well over 90 percent of brokers have clean records. “I see no downside for the firms. This voluntary program would be a way for securities firms to say to customers, in essence, `The overwhelming majority of brokers are honest, ethical professionals and we want to make sure you`re doing business with one of them.’” Skolnik made the proposal at NASAA’s 82nd annual conference, in Puerto Rico.

“While there are a relative handful of bad apples in the securities business, they can do a lot of damage to individual investors,” Skolnik said. Such rogue brokers often cold call investors, move from firm to firm as complaints and disciplinary actions pile up and inflate their resumes to impress potential customers. As an example, Skolnik pointed to the brokers at firms like Stratton Oakmont, Duke & Company and others that pushed risky microcap stocks on gullible investors, resulting in hundreds of millions of dollars in losses.

Investors should also check out a broker’s education and work history, Skolnik urged. “The guy who brags he graduated from Wharton and is managing some of Donald Trump’s money, may in fact have dropped out of community college and six months ago was delivering pizza.”

To check the CRD record of a broker or firm, call your state securities regulator or the National Association of Securities Dealers’ toll-free disclosure hotline at 800/289-9999. You can also request a broker’s record online at www.nasdr.com

The best time to do this—for the investor and the securities firm– is when a new account is opened, Skolnik said.

Disciplinary information in the CRD system includes customer complaints, arbitrations and actions by state, industry and federal regulators and law enforcement agencies.

The CRD, established in the early Eighties, is jointly owned by NASAA and the NASD. It recently underwent a thorough redesign and upgrade to make it easier for both regulators and investors to use. The new system, known as Web CRD, allows regulators to proactively search the database and generate reports highlighting bad brokers and troubling trends.

The former system was based on database technology from the early Eighties; the new system is state of the art, Skolnik noted. “The old CRD was more like the old-fashioned library card catalogue. The new Web CRD is more like an Internet search engine.”

Added Skolnik: “We entrust our money and our financial futures to stockbrokers. Investors should do the same due diligence when they choose a broker that they should do when they make an investment decision. The CRD is an invaluable resource to check out a key group of professionals. There’s no similar database for lawyers or doctors. Investors should use it,” Skolnik noted. Skolnik said getting more investors to check their CRD would be a goal of his year-long tenure as NASAA president.

1999 Headlines, Newsroom