Securities regulator seeks tougher standard on investment fraud

Professionals from myriad industries have unquestionably felt the increased scrutiny of civil regulators and criminal law enforcers in recent years, both at the state and federal levels. An increased national emphasis has clearly emerged concerning the identification and punishment of alleged wrongdoing in the realm of fraud and white collar criminal activity.

We have remarked on that reality in prior select posts. It is especially apparent in Texas, where state authorities are cracking down in a progressively harsh manner in everything from Medicare billing irregularities to suspected fraud across a broad spectrum.

A recent article from the national publication Investment News spotlights regulators’ focus in the distinct area of offered securities. Specifically, the national overseer of the country’s brokerage firms and most its financial advisers and brokers has targeted the narrow realm of broker churning for heightened scrutiny and potential sanctions for given actors.

What the Financial Industry Regulatory Authority cites as a core concern is the recommendations of bad-faith professional advisers that induce customers to authorize portfolio trades that are unsuitable for their personal station.

Many older investors are best served by a buy-hold conservative account strategy, for example. Churning results in a flurry of transactions that most often benefit an adviser via commissions and charged client fees, while harming the customer.

Finra asserts that the current regulatory scheme for calling out and punishing brokers who engage in churning does not adequately protect consumers. The agency is proposing a new rule/standard that will make it easier for investors alleging broker wrongdoing to make their case. The details regarding the proposal can be gleaned through accessing the above link.

The rule is presently in the public-comment stage. If approved as a final enactment, it will greatly tighten up standards relevant to advisers and increase their potential for being targeted in civil and criminal probes.