The largest independent securities regulator in the U.S. is failing to prevent conflicts of interest among Wall Street equity analysts who later seek jobs at major corporations, according to a new study.

Ben Lourie, a PhD candidate at UCLA Anderson Business School, argues that the Financial Industry Regulatory Authority (FINRA) is failing to police the “revolving door” of sell-side analysts who are hired by publicly traded corporations whose stock they once touted to investors.

As part of Lourie’s research, he looked at 299 analysts and their recommendations between 1999-2004. He found the majority changed their behavior in the last year of employment as analysts. The data suggests analysts’ ratings became more positive in regard to companies that later gave them jobs as investor relations executives.

Lourie focused on only senior analysts in the report and looked at stock price targets and recommendations, looking for evident changes to an analyst's "Buy," "Hold," or "Sell" rating.

After researching the analysts’ career moves, Lourie says they tended to change their behavior during the year prior to their employment with the firms they formerly covered, not only becoming relatively more optimistic about the corporations but also relatively more pessimistic about competing companies, many of which are outside of the covered firms’ industries, Lourie noted in his findings.

Lourie came up with the idea for the inquiry after an analyst friend in Israel told him he was seeking a job with a company he covered. “That’s where I learned that there is a potential conflict of interest there,” Lourie says.

Lourie’s study is important because the U.S. Securities and Exchange Commission has tasked FINRA with the authority to govern business between brokers, dealers and the investing public.

FINRA did not immediately respond to requests for comment from the International Business Times.

One of FINRA’s responsibilities is to prevent conflicts of interest and to ensure that analysts’ research and recommendations are fair, unbiased and transparent. There has been only one documented case in which FINRA, formally NASD, fined an analyst for similar behavior.

In 2007, NASD fined Wells Fargo Securities and Jennifer Jordan, a former Wells Fargo research analyst, for failing to disclose in a series of three research reports that she was pursuing employment and then had accepted a job with Cadence, which was the subject of all three reports. Jordan was fined $12,500 and later appealed. The appeal backfired and the fine later increased to $20,000. Jordan received a two-year suspension from work as an analyst.

“Whenever there is a conflict of interest, an analyst is supposed to disclose it. I couldn’t find any mention of the conflict of interest in the reports I researched,” Lourie adds.

Conflicts of interest among Wall Street analysts are nothing new. Jack Grubman, former managing director of Salomon Smith Barney, was banned from the financial industry for life after the SEC found that from 1999 to 2001, Grubman issued research reports and other documents that concealed facts that misled investors.

In another high-profile case, former equity research analyst Henry Blodget was banned from involvement in the securities industry. In 2002, New York State Attorney General Eliot Spitzer released e-mails from Merrill Lynch that alleged Blodget’s valuations related to certain stocks conflicted with what he had published publicly.