Be Alert to Broker Fraud

If you have a stockbroker among your favorite friends, one reason may be that he or she has been through likeability training designed to attract customers and to keep them happy no matter what.

I say customers rather than clients because brokers (like insurance agents) are not necessarily experts in investing (or insurance) but they are salespeople compensated by sales commissions and they do have expertise in salesmanship.

Sad to say, brokerage houses have a long and sordid history of dishonesty, including fraud, and it is committed by their brokers in their dealings with customers.

That terrible fact bothered Arthur Levitt when he worked for 16 years on Wall Street, he worked on Wall Street. His concern was said to be a big reason why he accepted chairmanship of the American Stock Exchange (1978-1989) and later

of the Securities and Exchange Commission (July 1993-Sept. 9 1999).

Levitt realized better regulation of brokerage houses and securities brokers was needed, along with much better education of individual investors. He established a website for them, so that they could get free access to corporate filings and investor educational materials. He introduced a better regulatory climate but not enough to meet his own standards, largely because Wall Street had more influence than he did on the U.S. Congress.

With some help from Arthur Levitt’s books, among other resources, I devoted the December 2006 issue of my 12-page monthly newsletter to what investors needed to know to recognize and to avoid becoming victims of securities fraud. Also, a full copy of that issue is online and on file at http://napfa.org.