SEC moves to counter securities industry fraud

SEC Chairman Arthur Levitt told a congressional panel that the SEC will make the examinations over the next 6-8 months, Knight-Ridder reports. SEC will visit “scores” of securities branch offices during that period, Levitt said.

The examinations will be co-ordinated with the New York Stock Exchange, the National Association of Securities Dealers and the North American Securities Administrators Association.

This is second in what SEC calls a “rogue broker sweep,” an effort to counter sales practice abuses in the industry.

In the first such operation in 1992, SEC examined the hiring and supervisory practices of nine large retail brokerage firms. About one-fourth of the examinations led to referrals to enforcement authorities, SEC said. The new examination will include small and medium-sized firms, Levitt said. Levitt also pledged SEC intends to take a harder line on those individuals who are barred from the industry for sales practices abuses. On another issue, Levitt voiced concern that some securities broker compensation practices may exacerbate conflicts of interest by encouraging brokers to make trades instead of acting in clients’ best interests. He said he has asked various securities industry leaders to study compensation practices.