It would be nice if you did a piece on how many brokers the National Association of Securities Dealers actually de-licenses or punishes ... from my experience, it has been a complete joke.

--Carter Bell

Carter,

Your broker probably has a better chance of getting busted for public drunkenness at the Indy 500 than being nabbed for impropriety by the NASD.

Last year NASD Regulation or NASDR, the regulatory arm of the NASD, barred 456 individuals from the business and suspended another 287. Of course, that's out of 620,387 registered brokers.

Looking at those numbers in percentage terms, only 0.07% of these brokers were barred from the industry and an even smaller 0.05% were suspended. Hey, about 2% of people in the U.S. are part of the so-called correctional population.

Gee whiz, the brokerage biz must be squeaky clean.

The NASDR will certainly tell you that. "The vast majority [of brokers] don't violate our rules and are doing good jobs for clients," says Barry Goldsmith, executive vice president of the NASDR office of enforcement. "Every customer complaint that we receive is investigated and some portion of those result in formal disciplinary action."

A broker who is behaving badly might not get caught until it's too late or a professional's questionable ways may not result in disciplinary action by a regulator. Information about a broker's conduct is part of the public record, but, as we shall see, firms have their ways of making matters go away without violating disclosure requirements. If you do spot anything in a broker's background that looks suspicious, you probably want to run the other way.

The total number of all brokers and those disciplined has increased steadily during the late 1990s. The number of brokers rose 16% from 1996 to 1999 while the number of individuals barred rose almost 16% over the same period. Individuals suspended increased about 41%.

Last year, the NASDR received 6,391 customer complaints, up 21.5% from 1996, and 6,671 customer complaints were resolved -- including carryover complaints completed during the previous year.

"We're quite confident that the worst people in the industry are disciplined and dealt with in an aggressive way," says Goldsmith. "Our job is not to prosecute but to foster member compliance."

Attorneys who work with individual investors, however, see some obvious cracks in the regulation and punishment of wayward brokers.

"The best con men get away scot-free because the customers don't know he was cheating them," says Mitchell Perlstein, an attorney with the Investors' Law Center in Boca Raton, Fla. "We get frequent claims from people saying: How can this happen with a man who has a spotless record?"

The NASD, parent of NASDR and the Nasdaq Stock Market, is one of the securities industry's self-regulatory organizations. The NASDR is responsible for regulating the activities of registered firms and brokers. It can impose sanctions against firms and individuals but it cannot file civil suits like the Securities and Exchange Commission or criminal cases.

Goldsmith says the NASDR's statistics won't show the ultimate sanction: criminal prosecution.

The NASDR says that individuals who are barred from the brokerage business are often ones who already left the industry and fail to cooperate with an investigation. Being barred from the industry is a common sanction for failing to cooperate, says Roger Sherman, vice president of the NASDR office of enforcement.

Suspensions will often stem from cases when a broker makes transactions that are unsuitable based on a client's age, sophistication and risk tolerance. The NASDR does have sanction guidelines that take into effect issues like the number, size, and character of the transactions at issue and the level of sophistication of the injured or affected customer. Anything that requires a broker to be suspended for more than two years is usually egregious enough for the broker to be barred, says an NASDR spokesman.

Clients might make complaints or take their cases to arbitration but those cases doesn't directly affect a broker's license to do business. Arbitration cases won't necessarily result in an action by the NASDR, says attorney Howard Meyers with the law firm of Meyers & Heim in New York. In order for that to happen the case must be referred to the regulator's disciplinary panel.

Investors can try to protect themselves by checking any broker's background through the NASDR's Public Disclosure Program. You would be able to find out about: any consumer-initiated arbitrations or civil proceedings that resulted in an award to the customer; any pending arbitrations and civil proceedings involving investment activity; settlements of $10,000 or more in an arbitration, civil proceedings or customer complaints involving investment-related activity; or written customer complaints alleging sale practice violations and compensatory damages of $5,000 or more that were filed in the last 24 months.

So many arbitration cases are found in the NASDR's public disclosure system, called the Central Registration Depository or CRD.

However, the CRD won't give any explanation for an arbitration decision and will only show the amount of the award and the charge.

Also, some attorneys assert that brokers and their firms have a way of preventing any information from showing up on a broker's record.

For example, on behalf of a broker, a securities firm might offer to settle a case with a client with the stipulation that the person will withdraw the complaint against the individual broker, says Meyers. That information doesn't show up anywhere.

"A lot of settlements also have confidentiality stipulations. You cannot really tell your friends that you settled for $80,000 against Joe Blow or XYZ firm," Meyers adds.

Individuals who are dealing with these professionals simply need to be careful and keep their eyes open.

"Just because a guy plays tennis really well doesn't mean he's excellent stock broker," adds Perlstein. "People go into a rep's office and see very fancy office. They forget he's doing very well for the firm -- not necessarily his clients."