Wall Street Isn’t Trustworthy

Mar 12, 2014   //   by Profitly   //   News  //  Comments Off on Wall Street Isn’t Trustworthy


Many of us already knew Wall Street was full of scumbags, but now we have analysis from the WSJ to prove it.

In an article that ran last week titled “Stockbrokers Fail to Disclose Red Flags,” the Wall Street Journal sent a startling wake up call to those of us that tend to trust people, even when we shouldn’t.

For those of you that don’t know what a stockbroker is, Investopedia defines it as:

An agent that charges a fee or commission for executing buy and sell orders submitted by an investor. It’s also the firm that acts as an agent for a customer, charging the customer a commission for its services.

The Journal’s findings reveal a substantial gap in regulation of the brokerage business. Brokers’ records are something investors expect to be able to learn before they decide to trust these people with their money.

The first of two astonishing examples in the article I want to make note of is stockbroker Marcos D. Leiva. In less than two years, he had racked up a personal bankruptcy, a tax lien, a court judgment for unpaid debt and a criminal guilty plea relating to a false report to law enforcement, according to the Journal. These infractions should have been disclosed, but none of them were. A 75-year-old client claimed he lost most of his life savings through the broker’s actions, recovering only a fraction.

The second is Stockbroker Ronald J. Garabed. He failed to report not just one, but four bankruptcy petitions he filed between 1997 and 2007. And bankruptcy was his only problem, records show that the regulator also alleged that he borrowed $15,000 from a customer in 2006, (a big no no).

The Journal found at least 103 brokers still working last year who had managed to enter the industry without their regulatory records showing that they had filed for bankruptcy.

A broker’s reporting failures can be a warning signal of future regulatory problems. A former J.P. Morgan stockbroker, Tiara Monique Jones, filed a bankruptcy petition in 2010, which she didn’t report. The next year, she allegedly withdrew $1,000 from two customers’ joint account without their knowledge.

Check out the shocking graphic below. It shows that a bankruptcy filing itself doesn’t suggest dishonesty, but brokers who had unreported bankruptcies had worse disciplinary records than the industry norm, on average. They were more than twice as likely to have been fired and about one in 33 had three or more other black marks such as customer complaints or terminations on their regulatory histories, a rate more than 65% higher than other brokers.


One of my favorite websites, thereformedbroker.com, is run by Josh Brown. And you can probably guess by the name of the site that he used to be a stockbroker. He definitely had a few words to add to this article: http://www.thereformedbroker.com/2014/03/06/of-brokers-and-bankruptcy/

One of the things I can tell you for a fact was that the brokers who were in the worst shape financially were always the biggest compliance risks. This is very simple – in a transaction-oriented business where the worst practices and products will frequently offer brokers the highest pay, you’d have to be an idiot to expect a positive outcome for the client of a desperate salesperson. This demented system of conflicted compensation arrangements is precisely why I hated it so much and couldn’t wait to escape it. The most toxic combination you could ask for is to put someone who owes a lot of money in a position to advise others. Ain’t no amount of disclosure, fine print, oversight or potential consequences that are going to change that.

This article should prove to you that not only are several internet market gurus untrustworthy, but other people on Wall Street are just as crooked. People are way too quick to trust people, and Wall Street is one of the worst places to put your trust.

People like Tim and the other people that have large followings on Profitly are such a rare gift in the financial world and I hope this article makes you guys realize that. These guys post all of their trades online and there is also a website called investimonials where you can see reviews of their services. This all means that they are accountable, unlike stock brokers. Where a brokers’ profit depends on what they can sell, Tim and the other gurus can only sell their services if they make great trades and help others learn from their strategies so they get good reviews. If their services sucked, you would quickly find poor reviews on Investimonials.