COLUMN: When cheating lands brokers on the street

By Guest Contributor
July 5, 2013

By Suzanne Barlyn, Reuters

NEW YORK, July 5 (Thomson Reuters Accelus) - One would think that aspiring financial professionals would have learned not to cheat on tests long before setting their sights on Wall Street, but not everyone got that memo.

Every year, some would-be brokers kill their careers by cheating on licensing exams, according to a review of the Financial Industry Regulatory Authority’s disciplinary database. There aren’t very many of them – a handful every year that are not a significant percentage of the 185,000 licensing tests administered by FINRA annually. But their flameouts are colorful. 

The case files are sprinkled with grownups who have stashed answers in bathrooms, sneaked out to their cars to peek at study guides, and more.

“It speaks volumes to the character of these people,” said Alan Wolper, a securities lawyer for Ulmer Berne LLP in Chicago and former director of FINRA’s Atlanta office. “They want to manage retail money, but by their nature they are cheats.”

When they get caught, FINRA, in most cases, bans them entirely from the securities industry.

The problem of cheating on those exams is nothing new, though technology improvements have made it more difficult. Now, for example, electronic palm scans make it harder to hire stand-ins – something that scores of would-be brokers were caught doing in the 1990s. Some people still try.

Peeking in the bathroom

Most cheating incidents reported in FINRA’s disciplinary database involve the general stockbroker exam, known in the business as the “Series 7.” Passing the 250-question multiple choice exam is the gateway to working with retail investors. Some think it’s a killer test. Candidates must master everything from industry advertising rules to determining which types of investments are suitable for clients. Last year, 32 percent failed the test, according to FINRA.

FINRA settled three separate disciplinary cases related to cheating incidents since late last year. The regulator barred two of the individuals and meted out a two year-suspension in the third case.

A proctor in one of the cases found a brokerage trainee’s alleged study materials hidden above ceiling tiles in a testing center bathroom, according to the settlement. A broker in another case allegedly peeked at review materials stashed on top of a locker in a break room during an exam for an additional type of license. The third case involved an aspiring broker who was suspended for allegedly having notes on hand during the exam, according to FINRA.

None of those involved admitted or denied FINRA’s charges. Efforts to locate them were not successful.

Some brokers and trainees are brazen in other ways. Lawyers contacted by Reuters said they knew of at least two active FINRA enforcement cases against people who hired test-takers for their licensing exams. A FINRA spokeswoman declined to comment.

High-tech proctoring

Security for licensing exams is always a concern, a FINRA spokeswoman said. The testing companies that administer FINRA exams must follow the regulator’s securities procedures, including locking up test-takers’ personal belongings when they arrive. Other measures include video surveillance and scheduled bathroom breaks.

Technology advances have helped to dramatically scale back cheating during the past decade – not just in the securities industry, but in other fields, according to Robert Whelan, president and chief executive of Pearson VUE, a unit of London-based Pearon Plc that runs testing centers, including those for the securities industry.

Many industries, for example, use a testing system that generates completely different tests for each person, drawing from a database of thousands of potential questions. That makes it impossible to predict what the questions may be, Whelan said.

Prometric, another testing center company that works with FINRA, began scanning test-takers last year with metal detector wands. The company is a unit of New Jersey-based Educational Testing Service.

Such a policy, which prevents people from bringing cell phones and cameras into testing rooms, could deter another potential threat: test preparation companies whose employees may take exams in order to copy questions for their courses, say lawyers.

(Suzanne Barlyn is a New-York based Reuters correspondent who covers compliance issues.)

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