Newspaper article St Louis Post-Dispatch (MO)

State, Brokers Back Sec Call for Reform

Newspaper article St Louis Post-Dispatch (MO)

State, Brokers Back Sec Call for Reform

Article excerpt

Missouri officials and brokerage executives reacted positively Thursday to a federal campaign to crack down on stock brokers who cheat their customers.

But some question how quickly any reforms can take effect.

On Thursday, Arthur Levitt, chairman of the Securities and Exchange Commission, released the results of a study of broker sales practices at nine large securities firms. The study showed that firms are willing to hire brokers with a history of customer complaints.

Levitt said the securities industry and the SEC must remove unethical brokers from the industry, improve broker training and reduce the conflicts of interest in the way brokers are compensated.

"Every time a broker churns and burns a client and then bounces to the next firm with no problem, the profession is tarnished," Levitt said in a speech to the National Association of Securities Dealers in Washington.

Missouri Secretary of State Judith K. Moriarty praised Levitt's report and his calls for reform.

"The results of the SEC study are troubling in that over one-quarter of the branch office examinations resulted in referrals to enforcements," Moriarty said. "While one-third of the brokers who were the attention of the study have left the industry, . . . two-thirds are still active."

The SEC plans more examinations and more expensive sanctions to crack down on sales abuses. It wants brokerage firms to be given qualified immunity from defamation suits so they can make better disclosures to regulators about why a broker was fired.

Regulators need to build a better central database to provide easier access to disciplinary records, Levitt said. And firms need to take a harder look at a broker's disciplinary record before hiring, he said.

Levitt also said compensation practices in the securities industry may exaggerate conflicts of interest between customers and brokers.

Some firms pay their brokers more when they sell securities from the firm's inventory than when they act as an intermediary in a transaction.

Likewise, some brokers get more compensation for selling one product than for selling another.

John Perkins is the commissioner for securities in Moriarty's office and also chairman of the enforcement committee of the North American Securities Administrators. …

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