FINRA Sends Rule to SEC This Week Requiring Greater Due Diligence In Hiring Process

Finra is pushing ahead with a really important rule-change that would require brokerage firms to vet new hires more thoroughly.  Often in FINRA arbitration claims, Claimants make a negligent hiring claim against firms where the broker subsequently steals or converts clients money or engages in some other nefarious conduct. On Wednesday, FINRA sent a rule to the Securities and Exchange Commission that would require brokers to put in place written procedures to verify the accuracy of information contained in an applicant’s U4 form.  This is an important change because while firms are expected to review brokers applications before hiring, the new rule makes that requirement more stringent by forcing them to conduct a search of public records.  If this rule passes, it will both protect investors and also assist Claimant lawyers when they sue brokerage firms on negligent hiring claims.

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Brokerage Firm Counterclaims Against Investors Becoming A Trend?

Does FINRA have a new public relations black-eye? In today’s New York Times, Susan Antilla analyzes whether brokerage firms are now suing customers for filing arbitration claims against the them. The answer appears to be no as only 13 examples of firms suing customers are cited in the article and about half come from one firm, Berthel Fisher & Company. In the article, a FINRA spokesperson makes clear the use of tactics designed to “intimidate or keep customers from exercising his/her right to proceed in arbitration would violate FINRA conduct rules…” Privately, FINRA can’t be happy with the message getting out to the public that investors who file FINRA arbitration claims might get counter sued by the very firms they regulate. Fortunately, it doesn’t appear to be a coming trend but FINRA needs to nip this issue in the bud by filing enforcement actions against firms like Berthel Fisher that are consistently filing these sorts of counterclaims.

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