Watchdog’s Hunt Is Short on ‘Wolves’; Finra program hasn’t barred any brokers tied to Stratton Oakmont from ‘Wolf of Wall Street’ fame

http://www.wsj.com/articles/watchdogs-hunt-is-short-on-wolves-1425511252

Watchdog’s Hunt Is Short on ‘Wolves’

Finra program hasn’t barred any brokers tied to Stratton Oakmont from ‘Wolf of Wall Street’ fame

JEAN EAGLESHAM And ROB BARRY

March 4, 2015 6:20 p.m. ET

Christopher Veale started his career as a stockbroker at the notorious boiler room Stratton Oakmont Inc. depicted in the film “The Wolf of Wall Street.” In the 20 years since then, he has worked for 18 firms and racked up 25 red flags on his disciplinary record.In addition to 10 customer complaints that have resulted in payouts totaling more than $327,000, Mr. Veale’s disciplinary record shows four regulatory actions, including a 2004 case in which he agreed to a 45-day suspension and penalties totaling $46,696 for allegedly excessive trading, without admitting or denying liability. In a career with stops in Florida, Michigan and Kansas, six of the 18 brokerage firms he has worked for were later expelled by regulators.

Slammed by a state regulator last year for his alleged “unethical and unscrupulous” treatment of an 81-year old investor, Mr. Veale might seem a likely candidate for the “High Risk Broker” program run by Wall Street’s self-regulator, the Financial Industry Regulatory Authority.

Launched two years ago, Finra’s High Risk Broker fast-track enforcement program targets individuals with large numbers of disciplinary red flags and a “legacy of being associated with risky firms,” a spokeswoman said.

But Mr. Veale, 42 years old, and other former Stratton Oakmont employees aren’t among the 131 brokers barred as a result of the program, the Finra spokeswoman said. She wouldn’t say if any of Stratton Oakmont’s former employees have been classified as high risk under the program.

The watchdog doesn’t disclose the exact criteria it uses to classify a broker as high risk or what action it takes as a result.

Mr. Veale, who left the industry last month after The Wall Street Journal had asked Finra for comment on his record, said in an interview he has “moved on to other ventures” and declined further comment. In his disciplinary record, he either denies wrongdoing or doesn’t comment in relation to the customer complaints. A Finra spokeswoman declined to comment on Mr. Veale.

Susan Axelrod, Finra’s head of regulatory operations, said the fact that someone has worked for a high-risk or an expelled firm “doesn’t mean they’re necessarily a bad actor or guilty of anything.”

Finra wouldn’t disclose the names of the 131 brokers barred as a result of the program or detail how they were selected. A Finra spokeswoman also declined to say how many brokers still in the industry it has identified as high risk, saying this is a fluid number.

“Unfortunately, the program’s shrouded in secrecy,” said Terry Weiss, an attorney at law firm Greenberg Traurig LLP, who represents brokerages in disputes. He said that clearer Finra guidelines on who counts as high risk would help the industry to police itself, saying most “firms would want to have these brokers out of the business.”

Ms. Axelrod said Finra was “being clear about many of the factors we’re looking at” in the high-risk program, such as criminal charges, disciplinary actions, customer complaints and the firms for which the broker has worked. “I don’t think we’re hiding the ball,” she said.

Stratton Oakmont, a Long Island penny-stock-pushing firm that cost investors more than $200 million, was closed by regulators more than 18 years ago. But 166 of its 904 brokers were still in the industry last year, according to an analysis by the Journal of about 500,000 brokers’ records.

Many of the former Stratton brokers seem drawn to troubled employers, moving from one problem firm to another, a practice known in the industry as “cockroaching.”

At least 39 of them, or almost one in four, went on to work for one or more other brokerages expelled by Finra from 2005 to 2012, the Journal’s analysis found. That is more than 25 times the rate for the typical broker in the analysis.

The 166 Stratton alumni still registered to sell securities also show a tendency to accumulate complaints, regulatory actions and other red flags, such as bankruptcy filings or criminal charges. While half the group has spotless disciplinary records, on average the former Stratton brokers report nine times as many red flags as the average broker in the Journal’s analysis.

Finra has taken nearly 200 regulatory actions against brokers associated with Stratton Oakmont, including barring 134 of them, according to a spokeswoman.

This tally includes a small number of people who worked at Stratton before they were registered as brokers, Finra said. This means their time at Stratton doesn’t show on Finra’s BrokerCheck website, which shows firms where brokers were registered.

Abed Lulu, a 40-year-old broker on Long Island, worked at Stratton from May 1995 to December 1996, according to his state record. His BrokerCheck shows his career beginning when he joined another firm as a registered broker in June 1997.

Since his time at Stratton, Mr. Lulu has worked for 21 firms, including seven expelled by Finra, and accumulated 10 red flags, his BrokerCheck record shows. He didn’t respond to requests for comment. A Finra spokeswoman declined to comment on him. Mr. Lulu has worked at more firms than 99.99% of the brokers in the Journal’s analysis.

The lack of public information on Finra’s high-risk program makes it hard to judge its results, some legal observers said. The 131 brokers ejected from the industry over two years as a result of the program represent a significant slice of the brokers barred by Finra: a total of 910 for 2013 and 2014. But that 131 is a fraction of the 636,707 brokers overseen by the regulator.

“Just on the numbers, this seems [very] low,” said Scott Ilgenfritz, a partner at law firm Johnson Pope Bokor Ruppel & Burns LLP who represents investors. While the “real bad apples” are a small minority in any industry, that doesn’t mean a total of 131 people barred is “anywhere close to the folks that shouldn’t have a ticket to provide investment advice,” Mr. Ilgenfritz said.

Finra officials said the watchdog has substantially increased the resources it devotes to going after the advisers who pose the greatest risk to investors.

“We do our best every day, and I think our record speaks for itself,” said Ms. Axelrod. “Among the regulators, we continue to bar a substantial number of individuals and aggressively pursue high-risk brokers. Every day we walk in the door and we’re focused on this.”

One broker said it would be unfair to assume Stratton’s presence on his résumé signals high risk. “I wasn’t involved at all,” said Glenn Hechler, 41 years old, whose employers since he interned at Stratton in 1995 include two other firms expelled by Finra. “As an intern, I was the guy getting the coffee.” Mr. Hechler’s record shows seven red flags not linked to his time at Stratton, including six customer complaints—for which he denies any wrongdoing—that resulted in payouts totaling $212,000.

His lawyer, Timothy Feil, said: “In the last 15 years of his career, he’s only had a single customer arbitration, which his employer settled for a nominal amount to avoid the nuisance of litigation.

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