5 banned firms in his past, a broker now faces fraud charges

Before Surage Roshan Perera's arrest on securities fraud and other charges in March, the former broker had worked for five firms that were eventually banned from the industry.

And his latest employer, Aegis Capital — a New York-based brokerage and advisory firm that's still in business — has 38 disclosures of customer complaints and other questionable dealings on its records. Any one of those bits of information should have been a huge red flag to investors who were considering taking advice from Perera, said Craig McCann, the president of the research group SLCG Economic Consulting and a frequent expert witness in securities fraud cases. 

The problem, McCann said, is that the Financial Industry Regulatory Authority doesn't make it easy for investors to connect the dots in the work history of someone like Perera. The self-regulatory organization for brokerages maintains a list of brokers and brokerages that have been banned from the industry. But it has no public ranking of firms with the most customer complaints and other disclosures.

"If they would just produce a list, maybe ranking brokers with one to five stars based on the disclosures on their record, it would be really easy for investors to understand," McCann said.

Ray Pellecchia, FINRA head of public relations, said BrokerCheck is a comprehensive database.

"I want to emphasize that a registered individual's record, and that of any firm with which they were registered, are on BrokerCheck, the purpose of which is to enable public investors to make informed investment decisions," he said in an email.

Pellecchia said FINRA does rank the riskiness of brokers using a system that takes into account the disciplinary records of previous employers. But this information is used internally to determine which firm representatives might merit more scrutiny from regulators. That means it would be of no help to anyone trying to learn about Perera and his sketchy work history.

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The Perera case
Perera, a 50-year-old New Yorker, was indicted on March 27 in federal court in Brooklyn on 16 counts of securities fraud, wire fraud, money laundering and other crimes for a deceptive investment scheme run from February 2022 to March this year. He's accused of persuading a client — identified only as Jane Doe in court records — to entrust him with more than $4.2 million that he said he'd use to buy stock at discount prices through relationships he supposedly had with large financial institutions. 

Prosecutors allege Perera instead used the money to pay personal expenses and fund his day trading, among other things. Attempts to reach Perera's lawyer, Mike Gilbert of New York-based Sheppard Mullin Richter & Hampton, were unsuccessful.

Whether a centralized disciplinary database could have prevented the crimes Perera is accused of is, of course, impossible to tell. But it at least could have given his alleged victim reason to think twice before hiring him. 

McCann said FINRA does allow its BrokerCheck data to be compiled and analyzed by firms like his for research and academic studies. But the regulator's "terms of use" forbid employing the data for commercial purposes. 

That's a shame, according to McCann. He said a private company like the research firm Morningstar could provide a service to the public by publishing its own list of dubious brokerages.

"We may end up just having to do it ourselves," McCann said.

FINRA does have policies in place to protect the public from likely bad actors. Its rules stipulate that individual brokers with bad records can be placed on "heightened supervision," requiring their transactions to be subject to frequent scrutiny by in-house associates. And in February, FINRA won approval for a policy allowing it to flag firms with a history of going astray as "restricted" on their BrokerCheck pages.

But none of that, McCann said, takes the crucial step of making the public aware of brokers who've had a string of working with disreputable firms.

"BrokerCheck makes its data available in such a hobbled fashion that's not really of any value to investors," he said.

In Perera's case, one surprise for McCann was that the former broker — Perera's no longer registered with FINRA — had only one customer complaint on his record before his indictment on fraud charges. He was accused by a client in February 2009 of engaging in an unauthorized purchase of shares. He settled the complaint eight months later for $12,000.

Looking past his personal record and more closely at the firms he's worked for, though, provides plenty of reason for having misgivings. In a June 2016 paper titled "How Widespread and Predictable is Stock Broker Misconduct?", McCann and his colleagues found that the likelihood that an individual broker will break bad is much greater if they worked at firms or around other representatives with bad disciplinary records.

In other words, McCann said, "you are heavily influenced by the people you work with."

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Bad company, we can't deny
In Perera's case, there were bad influences aplenty. His employment history of now-permanently-banned firms started at Continental Broker-Dealer, a New York firm that racked up 27 regulatory marks on its record before being kicked out of the industry by FINRA in June 2004 for failing to report customer allegations of fraud and other misconduct. Perera was there for the year leading up to the expulsion.

In February 2004, he found himself at LH Ross & Co., a Boca Raton, Florida-based firm that managed to rack up 46 disclosures before being booted from the industry in March 2005. Perera then went on to work at three other firms with significant numbers of disclosures before landing in 2006 at Prestige Financial Center, a New York firm with yet another checkered record. FINRA kicked it out of the industry in May 2011 over allegations involving a fraudulent trading scheme. 

Before later going on in 2014 to found his own firm, Janues Capital, Perera would work at two more eventually expelled brokerages: Global Arena Capital in New York and Caldwell International Securities, which had its headquarters in the Bahamas. 

McCann said Perera's previous employment with five banned firms gives him a dubious distinction. Looking at the 572,304 brokers who were registered with FINRA on Jan. 1, 2022, his firm found that only 149 — less than 1% of the total — were associated with five or more expelled firms.

But is it fair to ding a broker with only one complaint on his record for merely being associated with bad actors? Just or not, McCann said, the data is conclusive that a history of working for expelled firms tends to go hand in hand with future misbehavior. He noted that FINRA Executive Vice President Jonathan Sokobin, formerly the regulator's chief economist, contributed to a paper that reached similar conclusions.

"We can say that this is a broker who's at a firm that hires a lot of bad brokers and doesn't supervise them," McCann said. "You don't have to be saying anything about this particular individual. But it is true that he is more likely to be a risk to customers simply because he is at a firm that hires brokers who have a lot of complaints and doesn't supervise them."

The report FINRA's former chief economist helped write has the title "Do Investors Have Valuable Information About Brokers?" In the end, it concluded that, yes, the public does have what it needs in BrokerCheck and other online databases to sort out trustworthy professionals from ones they'd be better off avoiding.

Douglas Schulz, the president of Invest Securities Consulting and a longtime FINRA arbitrator, isn't convinced. To learn about Perera's work history, Schulz said, investors would not only have to know to look him up on BrokerCheck, they'd also have to know to be on the lookout for expelled firms. And then they'd have to know to look up each firm to learn what got them banned.

Or as another example, take Perera's latest employer — the still-operating Aegis Capital. Nowhere on Perera's BrokerCheck page is there any mention of the firm's 38 disclosures. Learning of them requires running a separate search using the Aegis Capital name. And then learning what those complaints consist of requires clicking on a link to a "detailed report." A representative of Aegis Capital couldn't be reached for comment.

"To the average investor, if I pull up this guy's record — and this is assuming you know what FINRA is and what BrokerCheck is — I see this guy has 18 years of experience, and that looks pretty good," Schulz said. "The average investor isn't going to go much further beyond that because they don't know how to do it."

Schulz said it should come as little surprise that someone with Perera's history of surrounding himself with bad actors should one day end up in a securities fraud case.

"It's the trend," he said. "These guys go from one schlocky bucket shop to the next. The environment breeds it."