How Far Should Brokerage Firms Be Permitted To Go In Investigating Employees?
Minnesota-based Woodbury Financial Services, Inc. recently advised its registered representatives that it has adopted several very controversial personnel policies. First, Woodbury has told its representatives that they will be required to submit records concerning their own private financial background and investments, as well as those of their wives, husbands, and significant others, to review by Woodbury's Compliance Department. Second, Woodbury has also required its representatives to agree to ongoing credit and criminal-background checks. These moves are widely seen as being in response to recent SEC enforcement action against Royal Alliance Securities involving that firm's failure to establish reasonable and adequate procedures to supervise satellite offices whose rogue brokers took advantage of their clients.
Although brokerage firms' compliance procedures often require that registered representatives submit their own account statements for review, some industry watchers have characterized the recently adopted policy by Woodbury as unprecedented insofar as it requires account statements of spouses and significant others to be submitted for scrutiny. Woodbury issued a written statement explaining "the purpose of the check of financial information is to detect and prevent fraud on customers." Some brokerage abuses such as insider trading, front-running, and market manipulation, may be detected and prevented by a well-designed and carefully followed policy of periodically reviewing representatives' statements and those of their family members.
Critics of Woodbury’s new policies claim that the policies go too far and are an unwarranted invasion of privacy rights. Woodbury claims that the new policies are not unusual but are in line with best industry practices.
Page Perry, LLC is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. The firm also has an active practice in representing individuals in employment disputes with brokerage firms. The firm is currently involved in representing several brokers in such disputes. In the past two years, the firm has won arbitration award for clients in employment disputes in the amounts of $1.7 and $3.9 million. For further information, please contact www.pageperry.com.
