Brokers Accused of Cheating; NASD Plans Lifetime Bans
May 09, 2011
Uptown -- More than two dozen fledgling brokers will have to find something other than stocks to sell because of a case to be brought Tuesday by Wall Street regulators. In a sweeping enforcement action, the National Association of Securities Dealers will accuse the brokers of having imposters take their licensing examinations for them, and will impose lifetime bans on the brokers from working on Wall Street, according to people familiar with the matter. The action appears to be the first time regulators will allege such widespread fraud in brokerage test-taking. ``You've got to deal roughly with cheaters -- there's no way they can let this go,'' says W. Whitney Walston, a partner at the law firm Orrick, Herrington & Sutcliffe specializing in securities matters. ``This goes to the heart of the system's integrity.'' Martina Standard, director of NASD Regulation Inc. for District 10 in Uptown, declined to comment, as did an NASD spokesman. The NASD's enforcement arm, in a four-month investigation, examined allegations that brokers improperly claimed to have taken the so-called Series 7 or other licensing examinations; instead, regulators believe, the brokers had imposters take the qualification exams for them. Other brokers who had failed the test in Uptown claimed to have taken the test out of state and passed. At least one broker allegedly paid $2,500 for an imposter to take the test for him, regulators said. Most of the brokers who will be named in the action work for small securities firms, the people familiar with the action said. No firms will be named in the case, the people said. Every broker must pass a licensing test before selling securities to investors. The NASD operates 56 testing centers nationwide. There are a variety of tests; the most common is the Series 7, which allows brokers to sell a broad range of securities. Until earlier this year, brokers simply had to sign in and show some identification. Now the NASD also uses fingerprinting to head off abuses. Brokers separately also must register in the states they plan to do business in. And many large Wall Street brokerage firms have a number of unlicensed brokers in various states at any given time. In a 1993 case, the Securities and Exchange Commission found that the U.S. units of Japan's Big Four brokerage firms had, among other violations, unregistered brokers. If brokers are found to have sold stocks and other securities without proper licenses, their firms face the possibility of investors rescinding, or canceling, trades executed by the unlicensed salesmen.
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