The three professors who published it early this year collected the disciplinary records of every stockbroker in the country from the Financial Industry Regulatory Authority, the industry’s self-regulator. They found that about 7 percent of the brokers had at least one black mark, yet 44 percent of those who lost their jobs because of misconduct found work elsewhere in the industry within a year. The researchers’ conclusion? Some firms “specialize” in misconduct, as they put it.
I first wrote about the study, by Mark Egan, Gregor Matvos and Amit Seru, in May and called out Oppenheimer. In spite of its storied brand name, 19.6 percent of its representatives had at least one black mark. Those spots on their records, which any consumer can (and should) look up on Finra’s BrokerCheck website, can result from various investor or regulatory complaints or investigations, criminal proceedings or personal money problems like a broker’s bankruptcies or tax liens.
But buried in the paper was this gem: In Suffolk County on Long Island, 17.3 percent of brokers had at least one type of the misconduct that the researchers were counting on their records. In Palm Beach County, Fla., it was 18.1 percent. But in Madison County, a whopping 32 percent of brokers had a black mark.
Was it something in the air? To find out, I collected the records for all the brokers whose registrations placed them in Madison County and read every one. At least 30 who had black marks worked for firms called Ridgeway & Conger, Adirondack Trading Group or Clayton Lowell & Conger. All of them have the same owner.
According to various regulatory filings, these firms ceased doing business as of this summer. But Leigh Garber, whom Finra lists as having been a direct owner or executive officer of all three firms, still seemed to maintain an office on Main Street in New Woodstock.
That building, which she owns with her husband, Richard, has two storefronts. When I stopped by on Wednesday, it still had the signs from the now-defunct firms over the windows. I peeked in the window of one store and saw a messy assemblage of abandoned desks. Large binders were lying askew on the window ledge with labels like “Muni’s Book 1 June 2015.”
I knocked on the door of the other storefront, and behind the door were two large, barking dogs and a few young men hunched over computers. I asked for the Garbers, and one of the young men led me through a dark back room, up steps, past a warren of empty rooms and into the office of Mr. Garber.
After asking for various forms of identification and calling my editor to confirm my identity, he explained the firms’ hiring process, for he had worked at the firms, too. They had found their brokers through mass mailings and recruiters and hired just one of every six or seven people who responded, he explained.
“We didn’t want to consider people who had multiple marks for the same thing,” he said. “The vast majority had opportunities to work someplace else. We were not a dead end.”
The gallery of colorful characters they did end up taking on included two brokers who had resigned or been fired from previous firms when client signatures appeared on forms that the clients had not signed, another who lost his job for impersonating the chief executive of American Express on the phone, and a man with a record for having taken football bets. Sports, stocks, same difference, right?
Mr. Garber, who has black marks of his own thanks to a misdemeanor plea related to allegations of misappropriation of client funds in the 1980s, says he is not a fan of the industry’s disciplinary processes, adding that once brokers have a spot on their records, securities lawyers put a target on their back. “The system is broken,” he said. “It’s like 1-800-Sue-Them out there, though I’m not saying people shouldn’t have the right to complain.”
At one point, Mr. Garber brought Ms. Garber into the room where we were talking. She is in the midst of an extended suspension from supervisory roles in the industry, in part because of a settlement related to charges that the firm failed to maintain sufficient net capital, did not properly account for expenses when they occurred or removed liabilities before it had satisfied them.
“We took pride in our broker-dealers,” she said. She owns a horse farm in the area, and the couple said that the men working in the storefront were part of a fixed-income trading operation using institutional money and none from individual consumers. The Garbers would not comment further on that operation.
Ms. Garber is now registered as a broker with National Securities Corporation, where she is not in charge of anyone. “Can I in my wildest dreams think that I would have allowed someone like that to act in a supervisory capacity? Absolutely not,” said Robert Fagenson, the chief executive of the firm’s holding company. “She has not done anything during her tenure here that we have found untoward.”
Ridgeway recruited nationally, so a large number of its brokers and clients lived outside Madison County. Nothing appears to be rotten in the water there, though another local man who did not work for Ridgeway was recently convicted of bilking investors of $2 million.
The other sizable local firm, Leigh Baldwin & Co., does have a handful of brokers with black marks on their records, but they are mostly both at least a decade old and concern events that occurred at other firms. Leigh Baldwin himself works on a row of desks on the ground floor of a stately building on the main drag of Cazenvoia, N.Y., roughly seven miles from New Woodstock. A 15-year-old beagle sits sentry at the bottom of the stairs.
In an interview this week, Mr. Baldwin objected strongly to being mentioned in the same breath as the Garbers. “We’re the opposite of a Ridgeway,” he said. “They are aggressive, advertised nationally. Our people are here by referral.”
A few more Madison County brokers with black marks work at the Canastota, N.Y., office of Cadaret, Grant & Co. Its disciplinary record is notable for a $75,000 fine last year (and the requirement to pay $236,242 in restitution) related to the advice a former broker gave an older customer about variable annuities. It had run into other similar actions related to variable annuities in the past.
The population of Madison County-registered brokers when the professors did their study was 131, so it represents a relatively small sample size. Some counties have thousands of brokers. And now that Ridgeway is out of business (because of a lack of profitability, according to the Garbers), the county would no longer top any new list of places where brokers with a checkered past have any kind of affiliation.
But the county’s story is worth telling now, given that brokerage firms are supposed to soon start acting solely in customers’ best interests when handling their retirement money. If you’re wondering why that wasn’t the rule before, well, get in line. In fact, all brokers had to do in the past was make sure that an investment was “suitable,” which turned out to be a pretty low bar.
One of Mr. Trump’s advisers promised last month that Mr. Trump would repeal this “fiduciary” rule if he were elected. Perhaps it’s wishful thinking, or perhaps it’s predestined. Any discussion of rolling back the rule, however, should occur alongside the disciplinary records of the kinds of people who managed to get hired in Madison County. It’s hard to imagine anyone trying to act in a customer’s best interest employing some of the people who were able to stay in business there in recent years.