Securities Markets:

Actions Needed to Better Protect Investors Against Unscrupulous Brokers

T-GGD-94-190: Published: Sep 14, 1994. Publicly Released: Sep 14, 1994.

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GAO discussed the Securities and Exchange Commission's (SEC) and self-regulatory organizations' (SRO) oversight of unscrupulous brokers, focusing on: (1) the extent of unscrupulous broker activity in the securities industry; (2) regulatory and industry efforts to discipline unscrupulous brokers; and (3) the industry's capability to identify unscrupulous brokers through its Central Registration Depository (CRD) database. GAO noted that: (1) the extent of unscrupulous broker activity is unknown because abusive sales practices are difficult to detect, CRD does not contain data on informal disciplinary actions, and CRD is not designed to provide summary data by violation type; (2) as of November 30, 1993, CRD showed that about 10,000 of almost 470,000 active brokers had at least one formal disciplinary action against them and 816 brokers had 3 or more actions against them; (3) state regulators believe SEC and SRO actions against unscrupulous brokers are too lenient; (4) regulatory gaps allow unscrupulous brokers to migrate to other sectors of the financial services industry; (5) a SEC staff study made specific recommendations to improve the hiring, supervision, detection, and discipline of problem brokers; (6) CRD has limited capability as a regulatory surveillance tool because of design and data limitations; (7) firms are not required to report customer complaints and informal disciplinary actions to CRD; and (8) the National Association of Securities Dealers is redesigning CRD to make it a more effective surveillance tool.

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    Priority Open Recommendations:

    Department of the Treasury
    GAO-20-549PR: Published: Apr 23, 2020. Publicly Released: Apr 30, 2020.

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