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“FINRA Is Supposed To Police The Market”

Posted by Larry Doyle on April 29, 2009 6:52 AM |

I have written extensively about FINRA’s ownership of Auction Rate Securities over the last few months. This morning Bloomberg reports, FINRA Oversees Auction-Rate Arbitrations After Exiting Market.

The Bloomberg article (I am humbled by Bloomberg quoting me in the story) answers a number of questions I have raised, while also opening the door to other issues needing to be addressed:

1. Was FINRA blinded – if not totally conflicted – in addressing the trading, selling, and marketing of Auction Rate Securities? Try 862 million times.

2. Was FINRA lucky, prescient, or well informed in the timing of the sale of their own Auction Rate Securities? We may never know but given that their first “guidance for investors” was not published until after the market had totally frozen, they certainly did not provide much investor protection as is their mandate.

3. I have also written, and Bloomberg highlights, that FINRA had money invested in hedge funds. In light of market developments, I think the public has a right to know which hedge funds. Will FINRA release that information?

4. I unearthed all the information of FINRA’s investment activities from its 2007 Annual Report published in April 2008. I am still waiting for FINRA to release its 2008 Annual Report and wonder why it seems to be delayed.

5. As we move forward with likely regulatory changes for Wall Street, I believe the very nature of a self-regulatory organization funded by the banks it is charged to oversee presents massive conflicts of interest. This specific situation of FINRA’s investment in ARS is indicative of those conflicts. Will Congress have the courage to address these conflicts and serve the public interest in the process?

“To me it smacks of incompetence and negligence,” said Larry Doyle, who worked 23 years on Wall Street and runs a Web site called Sense on Cents. “Finra is supposed to police the market.”

I view FINRA as akin to the palace guard. The question remains, Does The Palace Guard Have No Clothes?


  • AlwaysLearning

    Nice “shout out” on Bloomberg, LD. I’ve been following the pieces you’ve written about FINRA and ARS, so it’s nice to see Bloomberg got the story out, too.

  • Cool to see that you’re going big time LD. Keep up the great work…love the articles.

  • Bill

    Larry, many thanks for exposing this issue and pursuing it with Bloomberg. It potentially really strikes at the heart of the integrity of the securities regulatory mechanism in this country and raises the question seriously whether we are truly living in a kleptocracy. The question FINRA should be made to answer is WHY it chose to sell all its ARS, which it had held for years, prior to the collapse of the market. Did they have advance information of the pending collapse, which they withheld from the public? These, the very people supposedly protecting the public from this very type of practice. And now Shapiro heads the SEC!!!


  • Tony

    Was the fox guarding the chicken coop?

  • silver

    I am going to be able to say I knew LD and SOC back before they were discovered! 🙂 GO get ’em!

  • TeakWoodKite

    Larry Doyle, a sincere “way to go”! and Thanks.

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  • I met a client in October of 2007, who had over $400,000 in auction rate securities. I strongly advised him to get out of them. He replied, “they are just like a money market account.” I wonder who told him that?

    I felt so strongly about the position he was in with regard to having 100% of his money in ARS’s and him being 73 years old to boot, that I wrote him a letter strongly advising him to sell those ARS’s. I was unsucessfuly in convincing him to sell.

    Guess what? I got a call from him after the ARS scandal broke that he was sorry he didn’t take my advice. He thanked me for trying to protect him. At this point, I told him to get a lawyer.

  • Kathy

    Larry, great comment on the Huffington Post editorial by Dan Solin. The research you did on Finra’s own convenient dumping of ARS just before the crash is gaining steam. Thanks.

  • Dennis

    1. This conflict that was exercised upon must be brought to the attention of FOX News, and then the mainstream media. The reality that anything would come of it, however, is highly unlikely. It would be an embarrassment to the current administration (for choosing Shapiro) and this is not an issue that the current administration, an administration defined by arrogant omnipotence, will provide comment.
    2. You rightly point out in one of your articles that FINRA acts as a “governmental agency”. Actually, they play both sides of this ‘coin’. Side 1: With regard to the ARS this point is of particular importance. FINRA acts as a goverment agceny when it suits them (i.e.

    They assert that the top executives of the organization, as regulators, are entitled to absolute immunity from lawsuits

    “SEC nominee is facing questions over merger
    Schapiro got raise in regulatory shuffle.. Jan 12 2009 0530 hrs IST , Washington…” so they cannot be sued for insider trading, though it is obviouos to all that this illegal conduct occurred. Shapiro herself should be held to account. Of course, this claim to immunity provides the omnipotent attitude that runs rampant throughout FINRA, from the very top to the poorly educated, non-experienced new hires charged with finding fraud. The truth is, the FINRA task force is quite incompetent, harassing representatives and firms for minor violations (i.e. forgetting to sign a document) because, as they are inexperienced in the industry, they have no idea how to really uncover fraud. Side 2- “The other side of the ‘coin'”: FINRA calls itself a self-regulatory organization (as opposed to a government agency) when it suits them. Specifically, as a private membership organization their members are completely under their rules (defeating the term self-regulatory… the members no longer regulate themselves). Utilizing this side of the coin FINRA denies its members any semblance of Due Process or Constitutional Rights, conducting investigations, hearings and appeals in nothing more than a kangaroo court!

    I ask you, how in the world can the Membership (FINRA Members) stand for such hypocrisy? FINRA must be made to choose one or the other! Either they are a private membership organization and should be subject to prosecution and lawsuits for their wrongdoings, or they are a government organization in which case they must provide their members certain inalienable rights.

    FINRA, of course, will fight to retain their arrogant omnipotence. Due to the high cost of righting this wrong, both financially and becoming the target of endless investigations, a few firms alone cannot establish the fight. The member broker/dealers should call upon one of their advocates, i.e. The Securities Industry Association, to file suit against FINRA to have a legal remedy when FINRA acts unjustly, to remove their excess funds from the controlling coffers, and for the right to become, again, self-regulating.

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