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Checking Up on Your Broker

How to be your own private eye to ferret out problems with the law

  • PACER.gov. Here you can check federal court dockets to determine whether an adviser or firm has ever been sued for fraud or filed for bankruptcy.
  • Your state's securities regulator. Locate yours at nasaa.org, then look up the broker's Central Registration Depository (CRD) document, which can include such information as disciplinary actions, regulatory exam scores and work history

    "If you see he's moved around every six months or so, that could be someone who doesn't follow the rules," says Huddleston. "If you Google previous firms and discover a penny-stock boiler room, that should concern you."
  • The secretary of state office for the state where the firm is headquartered. If it's not licensed with that state agency's corporations department, or records show frequent name changes, suspect a fly-by-night.
  • The county courthouse. On-site computers can reveal civil and criminal lawsuits filed by local investors. Why this step? Lawsuits filed in federal courts are typically for mass-victim investment swindles, not smaller hit-and-run scams.

    And, of course, study your statements. Even if you think your current broker is legit, you need to make sure that your investment objectives — moderate, conservative, etc. — are being followed.

    And make sure that trades are properly labeled on your statement. For instance, if you see "UNSOL," for "unsolicited," that is supposed to mean that you, not the broker, suggested the trade. If trades are mislabeled, that could mean your broker is lying to the firm and possibly subjecting your money to risky investments.

Also of interest: What's in your retirement portfolio? >>

Sid Kirchheimer is the author of Scam-Proof Your Life, published by AARP Books/Sterling.

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