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NASD disciplines brokers
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July 24, 1997: 3:32 p.m. ET
Crackdown highlights increased fraud opportunities on Wall Street
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NEW YORK (CNNfn) - The National Association of Securities Dealers' regulatory branch announced Wednesday it has barred, fined and censured 20 individuals who are believed to have paid impostors to take brokers' exams for them.
The latest round of actions is part of a larger investigation by the NASD's New York office into the exam-taking scam. The organization has already taken action against 41 other registered representatives.
The NASD said the individuals would have to forfeit all commissions earned -- a total of $1.2 million - and will be fined $25,000 each for cheating. They also face fines of $25,000 if they fail to cooperate in requests for additional information.
The developments illustrate the many opportunities for fraud available in the securities industry. The Federal Trade Commission estimates that U.S. investors were bilked out of $40 billion in fraudulent investment schemes last year.
Part of the problem arises from the soaring stock market. As more investors and more money enter it, the chance of fraud increases.
"In the environment that we are in right now, where the market is growing rapidly, the most common area that we tend to see investors running into problems is in cold calling," explained Michael Jones, head of individual investor services for the NASD.
"Investors are receiving calls from potential brokers, people soliciting investments and asking them to make quick decisions in a 'get rich quick' scheme."
Andrew Kandel, chief of the Investor Protection and Securities Bureau of the New York State Attorney General's office, says it may not necessarily be a stranger who is the problem. (252K WAV) or (252K AIFF)
The forms of broker fraud vary, from failing to place a client's order, unauthorized activity in an investor's account, or simply pushing an investment without disclosing the risks.
The best way to prevent fraud is through research, says Kandel. "We always say that an educated investor is the first line of defense against fraud …. Conduct a thorough background examination of the broker, the brokerage firm and of the security that is being marketed."
The NASD offers free background checks on all registered brokers both on the Internet and by phone (1-800-289-9999).
If you suspect you've already been victimized, you should call the firm involved, said NASD's Jones. "Each firm has what's called a compliance officer. That person is responsible for making sure the brokers in that firm are following the proper rules and regulations."
If that doesn't work, the Better Business Bureau, the Federal Trade Commission and your state's attorney general monitor and investigate investment complaints.
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