Don’t be so quick to believe the dirt you hear about brokers.
That’s the inescapable takeaway from research reported by Bloomberg News last week showing that false accusations of broker misconduct are disturbingly common.
Dynamic Securities Analytics, a securities litigation consulting firm, reviewed 82 arbitrated disputes between brokerage firms and their former brokers that took place between 2016 and the first quarter of this year. In roughly half of those cases, arbitrators concluded that firms had defamed brokers when reporting the reasons for their dismissals.
Leaving aside the irreparable damage to the reputations of falsely accused brokers — which is considerable — Dynamic’s research raises serious doubts about the reliability of brokers’ public employment records. Brokerage firms must disclose brokers’ comings and goings and any wrongdoing they commit along the way. That information is meant to allow investors to evaluate brokers’ backgrounds and dodge bad actors.
And if those disclosures are to be believed, then there is an alarming amount of bad behavior. Researchers Mark Egan, Gregor Matvos and Amit Seru reviewed brokers’ employment records dating from 2005 to 2015 for a study in the Journal of Political Economy. They found that 7 percent of brokers have a record of misconduct and that the number exceeds 15 percent at some of the largest brokerage firms.
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