Words out ... that Wall Street firms are slow to report criminal, felony and misdemeanor charges against their brokers - which should provide FINRA with a viable target for its next industry-wide "sweep investigation."

Last summer, Goldman Sachs agreed to a $650K fine to settle charges it had failed to disclose that Fabrice Tourre had received a Wells notice from the SEC pertaining to sales of ABS investments.  

Morgan Stanley Smith Barney reportedly took months to report an incident involving one of its brokers, who was charged with a felony last summer, and pleaded to 2 lesser misdemeanor charges in December.  MSSB contends that it followed the correct procedures re: Mr. Erzinger, disclosing the matter once the related court documents became available.  Regulators are supposed to be told within 30 days of the initial charges - through postings to the CRD. 

The circumstances of the incident didn't provide for much room for positive spin by the guilty broker or MSSB.  According to police reports, Mr. Erzinger was driving his Mercedes-Benz over July 4th weekend when he allegedly hit a cyclist, seriously injuring the rider.  Mr. Erzinger left the scene of the accident and was found a short time later, in a parking lot, removing the side mirror and bumper from his car.  He told officers he didn't remember striking anybody. 

FINRA spokesperson Nancy Condon said the SRO is investigating the matter.  "There are serious questions about whether the reporting obligations were met."  Apparently, failure by financial firms to properly report infractions to FINRA's CRD is a persistent problem. 

    The Last CRD Sweep.   Wall Street, which finances FINRA's operations, has a checkered history of reporting infractions by brokers.  Regulators last conducted a sweep into such filing violations in 2004 - disciplining nearly 30 member firms, including some of the biggest names on Wall Street.  The resultant AWC's netted over $9.2 million, based on failures to properly disclose customer complaints and criminal convictions.  That same year, Morgan Stanley separately was hit with a $2.2mn penalty for failing to appropriately report 1,800 incidents of customer complaints and other wrongdoings. It was the largest fine ever levied against a firm for disclosure issues.

FINRA in 2010 fined Citigroup $150K for filing “inaccurate” disclosures about 120 brokers who were fired or resigned after being accused of theft or fraud.  In its AWC, FINRA wrote that Citigroup had "hindered the investing public’s ability to access pertinent background information."  JPMorgan Chase was fined $150K in 2009 for similar violations.   [NYT Dealbook, 2/23]