Do you want to know if your stockbroker has filed for bankruptcy? The Financial Industry Regulatory Authority (FINRA) does, and apparently for good reason. A recent study by the Wall Street Journal shows that stockbrokers that did not report their bankruptcy to FINRA were more likely to have three or more red flags on their records. Brokers that do not report their bankruptcies per FINRA regulations, are more likely than their non-bankrupt peers to have (1) regulatory actions, (2) terminations, (3) criminal charges, and (4) customer complaints. This information is not only good for investors, it is critical to compliance officers in the securities industry. A solid compliance program will include questionnaires of their employees regarding such things as bankruptcies. Of course this needs to be followed up with appropriate checks at the courthouse to include criminal and bankruptcy checks. While a bankruptcy itself does not suggest dishonestly, there may be a correlation to red flags which would merit further investigation.
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