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Finra Talking Tough on Fraud, but ‘Talk Is Cheap’

Posted by Larry Doyle on June 24, 2009 2:01 PM |

We can’t live in the past. It is not healthy to overly dwell on the past. Life is about the landscape in front of us. That said, unless we address, expose, and expunge the errors and omissions of the past, can we truly achieve the full potential of our future?

Our recent financial past has been filled with pitfalls and frauds. Wall Street’s self-regulator Finra is fully cognizant of investor concerns on this front. Finra recently launched a marketing campaign to address investor concerns. From Finra’s own website, Finra Launches Enhanced Investor Protection and Education Programs:

“Informing and educating investors is an essential component of our investor protection mission,” said FINRA Chairman and CEO Richard G. Ketchum. “The recent market turmoil makes it more important than ever that investors be aware of FINRA and the tools and resources that we provide to help them plan their financial futures, protect their interests and make informed investment decisions.”

The video, “Tricks of the Trade: Outsmarting Investment Fraud,” is a 60-minute broadcast-quality presentation on preventing investment fraud. Using profiles of victims and perpetrators, the video highlights the persuasion tactics that con artists use to defraud their victims and the basic tools investors need to defend against fraud. A trailer of the video is available at; the full video will be released in July, but can be pre-ordered. “Tricks of the Trade: Outsmarting Investment Fraud” will also be distributed in public libraries throughout the country and shown at movie premieres in selected states.

Any legitimate initiatives to counteract fraudulent activities should be embraced. I welcome this initiative by Finra and hope it proves overwhelmingly successful. The Wall Street Journal expanded on this Finra initiative in writing, New Finra Ad Campaign Talks Tough On Fraud:

Do you think your broker a total fraudster? Afraid your retirement is in jeopardy?

Then meet Finra.

That still relatively unknown acronym stands for the Financial Industry Regulatory Authority, the self-funded watchdog for the brokerage industry. And in its new national advertising campaign, Finra is seeking to restore investor confidence by talking tough against the brokers that don’t “play by the rules.”

“If brokers don’t play by the rules, we can fine them, suspend them – even put them out of business,” a male voice says in one ad, which displays black and white images of ordinary Americans against the backdrop of solemn guitar music. “We believe the markets don’t work unless they work for everyone.”

Pretty tough talk!! We need some tough regulators in order to root out fraudulent activity. We also need regulators who will pursue total transparency and integrity at every turn. Will Finra carry this torch? If so, it will have to address its own reputation in the process. The WSJ offers more:

Finra, like other federal government regulators, hasn’t escaped criticism since the financial crisis began.

Its reputation, along with that of the Securities and Exchange Commission, took a hit after news broke of Bernard Madoff’s Ponzi scheme.

Finra and the SEC conducted various examinations of his brokerage arm over the years, but never managed to detect his scam until his sons reported it to regulators after their father confessed in December.

Critics also questioned if regulators were getting too cozy with Wall Street after the news media reported that many of Madoff’s relatives and even Madoff himself held various positions on Finra and the SEC’s advisory boards over the years.

The WSJ is actually quite generous in addressing Finra’s past. How so? If Finra wants to promote transparency and expose fraud, perhaps they could start with the following:

1. Release the Finra 2008 Annual Report. It is, after all, June 24, 2009.

2. Provide details on Finra’s own investment activities. Specifically, which hedge funds and fund of funds has Finra placed their own money.

3. Provide details on the liquidation of their own holdings of $647 million in Auction-Rate Securities (position highlighted in Finra’s 2007 Annual Report released in mid-April 2008). The ARS scandal has been designated a fraud by federal judges. The fact that Finra sold a position of $647 million bonds just prior or as the market was failing is extremely troubling. Finra should provide all the information on this liquidation. Finra did not protect ARS investors as it did not post any color on the ARS market until 2008.

Prior to releasing all of these details, Finra’s ad campaign about truly addressing fraud and promoting transparency will be classified under the heading of “Talk is Cheap!!”


P.S.  For newer readers interested in all of the information and details surrounding Finra – its own investment portfolio, and its Auction-Rate Securities holdings and liquidation – please enter those words in the search window of any page here at Sense on Cents.

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