Study of the Effect of Industry Hiring Practices
and SRO Agent Licensing on Connecticut Investor Protection

EXECUTIVE SUMMARY
Issued July 1999

[ Full Text of Study ]

• During the last two years, the Securities Division received approximately 72,000 agent applications. Roughly 15%, or 10,800 of these agents, had at least one incident under the category disciplinary history. Approximately 3,000 agents the Division believed had significant disciplinary history were sent letters requesting additional information, including whether the agent had conducted business in Connecticut while unlicensed - an unlawful conduct. Approximately 1,000 applicants withdrew rather than respond to the Division's request for additional information.

• Approximately 95.6% of all agent applications received by the Division, including those with minor disciplinary incidents, are registered within 24 hours.

• Notwithstanding repeated customer complaints and arbitrations of a similar nature, broker-dealers choose to continue an agent's association without placing any additional supervisory conditions on such agents. This counters the argument that the securities industry is self-policing.

• Broker-dealers tend to pay the entire settlement amount for arbitrations and complaints filed against their agents. Agents have very little incentive to adhere to regulatory standards of conduct knowing that the firm will pay the regulatory costs incurred as a result of the agent's dishonest or unethical conduct.

• For every written complaint that is received, many others are never sent. Also, it is not uncommon for broker-dealers and their agents to dismiss or otherwise explain away customer complaints.

• The self-regulatory organizations rarely take action to bar an individual from the securities industry even when that agent has engaged in egregious conduct. To the extent that action is taken, it is usually long after the conduct has occurred and the agent has ceased working in the industry. Out of 600,000 registered agents, the National Association of Securities Dealers (the "NASD") brought 307 actions against agents to bar or revoke their registration during the first seven months of 1999.

• An agent with a pattern of arbitrations or complaints usually is the subject of additional incidents in the future.

• Many agents have a history of criminal conduct including attempted murder, assault, drug possession, theft and other offenses that would disqualify other professionals from pursuing their vocation (e.g., attorneys).

• Given the advances in technology, an agent located in New York City can easily transact business in California. Our study indicates that there is no direct and consistent correlation between an agent's place of employment and the jurisdiction that takes disciplinary action.

• Generally, it may take up to two years from the date an agent committed a violation to the date the incident is reported on the Central Registration Depository ("CRD"). During this time, an agent may automatically transfer from one firm to another.