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Investment Advisors Slip Through Enforcement Cracks, According to SEC Commissioner Daniel Gallagher

Posted on Monday, May 12th, 2014 at 6:31 pm    

In a recent speech, Daniel Gallagher, a member of the Securities and Exchange Commission stated that a large number investment advisers may be violating securities law and committing other misconduct without consequence because the Securities and Exchange Commission does not examine them as closely as it does brokers, reported Investment News.

“In reality, there are plenty of repeat offenders at investment advisory firms who are engaging in misconduct,” Mr. Gallagher said in prepared remarks for the Rocky Mountain Securities Conference in Denver, reported Investment News. “We’re just not finding them as quickly because the SEC allocates a disproportionate amount of resources to policing the activities of broker-dealers, compared to those we expend policing investment advisers.”

Mr. Gallagher stated when SEC staff recently reviewed disclosure information on FINRA’s BrokerCheck, the database shows that 20% of the 633,155 registered representatives listed there have between one and five disclosures, or listings, in the database for customer complaints, regulatory violations, terminations, bankruptcy and liens, according to Investment News.

The Financial Industry Regulatory Authority Inc., which is funded by the industry, oversees broker-dealers for the SEC, who examines approximately 9% of RIAs annually, according to Investment News. FINRA examines about half of the 4,140 registered brokerage firms under its authority, according to Investment News. The Investment Adviser Oversight Act of 2012, which would have established a self-regulatory organization for investment advisors, stalled in Congress in the face of staunch resistence from investment advisor organizations.

“Leveraging the current resources and expertise of broker-dealer SROs to assist in investment adviser examinations could greatly facilitate our ability to examine advisers without undertaking the daunting project, with Congress, of creating a new investment advisory SRO out of whole cloth,” Mr. Gallagher stated, according to Investment News.

Erez Law specializes in representing investors (not brokerage firms) in securities arbitration and investor fraud cases throughout the country. Erez Law has represented numerous investors in FINRA arbitration claims against the brokerage firms who sold illiquid, high-commissioned, non-traded investments, including TICs, REITS, promissory notes, and more, who have filed claims against their brokerage firms. To learn more, including whether you may have a claim for investments losses, please call us at 888-840-1571 or complete our “contact form.”