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Finra’s 2008 Annual Report

Posted by Larry Doyle on June 27, 2009 11:21 AM |

June 27, 2009

At long last, Finra has released its 2008 Annual Report.

I will provide a more thorough review of this report within the next 48 hours but I want to quickly provide some commentary on Finra’s assessment of their own involvement with Auction-Rate Securities.

1. They provide NO details on the liquidation of their own $647 million ARS position in Spring 2007. No surprise there but given that the U.S. attorney in Brooklyn and the SEC are investigating executives from Lehman Bros. for potentially front-running the market in liquidating ARS in the same time period, I believe this issue remains unresolved.

2. In my opinion, Finra’s review of their own handling of developments within the ARS market is akin to “the best defense is a good offense.” How so? Finra is touting a successful return of +/-1% of investor capital as a ‘flag waving’ event. WOW!!

Finra has been involved with 9 settlements totaling a return of $1.2billion dollars. Meanwhile thousands of investors with tens of billions of dollars remain frozen. Wall Street professionals involved in the ARS market have shared with me that as much as $170 billion in funds remain frozen. If that number is accurate, Finra’s “success” amounts to a batting average of .7 of 1%. If that is success, then the bar is obviously being held exceptionally low.

Dozens of ARS investors have contacted me to share their frustration in attempting to engage Finra.

3. Finra’s investment returns within their own internal portfolio were -26%. No details provided on which hedge funds or fund of funds.

As indicated previously, I will more thoroughly review the report within the next few days. On first blush I see no material increase in transparency necessary to inspire increased investor confidence.


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