Stockbrokers and Their Firms: The Story of Bad Apples from Bad Orchards

As a former Vice President and registered representative at several major brokerage firms for 20 years, I witnessed Wall Street in action. My assessment of Wall Street is that the majority of the 600,000+ registered representatives at over 5,000 brokerage firms are fairly honest people who seek the best interest of their clients. Unfortunately, there are some “bad apples” in that barrel – brokers who seek to line their own pockets with little regard for their clients.

Yet, it is not so much the apples but the “orchard” that is most troubling today. When I began my investment career in 1970, those running investment firms sought to take care of their clients and maintain their firm’s image. Over the following 20 years, I witnessed their profit motive increasingly outstrip those goals.

Today, it is clear that most financial firms pay little more than lip-service to their clients’ welfare. In the past decade, those who run these firms have discovered an important fact: Crime pays on Wall Street! The best example is the widespread research scandal which led to massive investigations, fines and lawsuits.

Yet, the fines paid were relatively small and most of the lawsuits were dismissed. Heavy duty lobbying by Wall Street had changed laws, for example to limit class actions to claims for fraud under federal laws in federal courts, with no recovery allowed from those who assist in the fraud. To make matters worse, the first case was decided by a 96 year old judge in the heart of Wall Street, who stated that the vast majority of investors just wanted to gamble anyway.

The bottom line is that the Wall Street firms identified in the investigations generated well over $100 billion as they misled investors to increase their profits, but have paid about 5% percent of those revenues for their transgressions. Meanwhile, as other major scandals continue to surface, the investment firms involved continue to make record profits.

How many in the public know that primary regulation of Wall Street firms is by an association owned and operated by those firms? The Securities and Exchange Commission is the government’s agency created to protect investors, but it is instead busy lowering restrictions on investment firms and lending its weight on the side of firms sued by investors, including at the U. S. Supreme Court.

Fortunately, individual claims filed by investors have fared better than class actions. Although the mandated securities arbitration process investors must use to recover from brokerage firms is another subject of concern for those who fight for investors, it does offer a fighting chance of success.

Meanwhile, the quality of fruit on Wall Street is not likely to change until that orchard is “fumigated for bugs” through legislative changes.

By: William S Shepherd:

When I left the securities industry in 1990, I agumented a law degree with a Master of Law (LLM) in Securities Regulation from Georgetown Law School. I then founded the law firm of Shepherd Smith and Edwards. We have since represented investors in almost 1,000 securities arbitration claims nationwide and are one of the largest in the U.S. specializing in such claims. If you or someone you know has suffered investment losses, contact Shepherd Smith and Edwards today.