WASHINGTON -- The securities industry must act to prevent repeated offenses by brokers or face tougher federal sanctions, SEC member J. Carter Beese, Jr., is scheduled to warn the Securities Industry Association this morning.
"The clock is ticking in Washington," Beese said in a prepared text of a speech released yesterday that the commissioner is scheduled to deliver at the SIA's 1993 Annual Convention in Boca Raton.
"Senior management, and their boards of directors, can -- and must -- take action before new laws are imposed to protect the public from perceived abuses" in sales of securities, including municipal bonds, he is expected to say.
The warning is considered significant both because it is being billed as having broad support from SEC commissioners and is the strongest statement to date that an SEC commissioner has made.
It also comes two weeks after Rep. John Dingell, D-Mich., told federal regulators that he may introduce legislation aimed at speeding up the disciplinary procedures used to get "truly bad apples" out of the securities business.
Dingell, who chairs the House Energy and Commerce Committee, said in a Nov. 15 letter to SEC Chairman Arthur Levitt, Jr. that he may seek an amendment to federal securities laws that would accomplish the equivalent of a "three strikes and you're out" policy to revoke the licenses of repeated violators.
Dingell also said he is considering tougher sanctions against firm officials who fail to supervise "rogue brokers."
"The industry must either take action on its own or face the prospect of federal sentencing guidelines for sales practice abuses," Beese was scheduled to say in the speech. The SEC chairman usually delivers the SIA keynote speech, but Levitt was unable to attend this year, said an aide.
Beese noted that following the 1987 market crash, the securities industry collectively decided that it was time to "get their house in order" with regard to managing risks o complex securities. "Today, the results are noticeable and commendable. The same needs to happen now with regard to rogue brokers, sales practices and supervision.
"Make no mistake about it, the securities industry will receive no public sympathy, and no public support, until it gets tough on sales practice abuses," Beese's speech text says.
"The commission is fully prepared to pursue failure to supervise sanctions right up to the chain of command. Senior management should now realize that geographic distances do not insulate them from rogue brokers and gunslinging branch offices."
Beese warned that compensation policies at firms that "encourage quantity over quality create an ethical cancer in a firm. Yes a fast spreading cancer -- and one that is cured not by chemotherapy, but instead by litigation and ruined careers."
Beese said that at the very least, firms should be encouraged to provide their compliance and legal departments with the ability to "affect employment decisions." And the SEC, along with self-regulatory groups, must seek increased sanctions against brokers who commit abuses -- and the people responsible for their supervision, he said.
