Corporate & Securities Law

Improved Public Disclosures About Bad Brokers Needed

By Keith Griffin

Securities fraud. Stockbroker misconduct. Unsuitable investments. Churning. Unauthorized transactions. Investment scams. Did you ever wonder what happens to bad brokers or financial advisors who are charged by regulators of committing these acts against individual and institutional investors? If your guess is they find a new career outside the securities industry, think again. Case in point: California investment advisor Jeffrey Forrest.

Investment News wrote a lengthy article on May 24 about Forrest and how the current lack of information regarding rogue brokers has become a growing disservice to the millions of investors who entrust them with their money.

Forrest?s story began in 2006, when he was asked to leave Associated Securities for making improper sales of a hedge fund called the Apex Hedge Fund. Two years later, the Securities and Exchange Commission (SEC) sued Forrest, accusing him of telling clients that the Apex Hedge Fund was designed to provide safety, security and liquidity of investor principal, while generating 3% monthly returns. In truth, the hedge fund was a highly speculative investment that engaged in risky options trading. 

In August 2007, the Apex Fund collapsed, causing investors to lose millions and millions of dollars.

In addition to levying fraud charges against Forrest, the SEC tried to permanently bar him from working in the investment advisory business altogether. 

That didn?t happen, however. Forrest continued to sell insurance in California, as well as run a registered investment advisory firm called WealthWise LLC in San Luis Obispo, California.

As the Investment News story points out, even though the SEC had initiated action against Forrest, he remained licensed by major insurance companies to sell life insurance.  In addition, in March 2009, a Financial Industry Regulatory Authority (FINRA) arbitration panel found Associated Securities and Forrest liable for their actions in connection to the Apex Hedge Fund and awarded $8.8 million to investors.

In June 2009, the SEC officially barred Forrest from acting as an investment adviser. According to its ruling, Forrest will not be allowed to associate with any broker-dealer or serve as investment adviser for five years. At the conclusion of the five years, Forrest can reapply with the SEC or FINRA to once again work for a broker-dealer or investment advisor.

Forrest?s story highlights the need for better transparency of public records on corrupt stockbrokers and investment advisors. Currently, such information typically is extracted from FINRA?s database two years after individuals leave the securities industry because of customer disputes or regulatory and disciplinary events. According to the Investment News story, records of more than 15,000 brokers who have left the securities business are not publicly available to investors. 

Making matters even worse: Some of these brokers have been involved in recent investment-related frauds that occurred during the market?s financial collapse, according to Investment News.

As for Forrest, his records are no where to be found on the BrokerCheck Reports section of FINRA?s Web site.

Full post as published by Representing Investors on July 08, 2009 (boomark / email).