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Obama and SEC Should Check FINRA’s Dirty Laundry

Posted by Larry Doyle on July 10, 2009 4:50 PM |

Quiet, clean, effective organizations don’t need major advertising campaigns. Their professionalism and demeanor speak volumes.

Why does FINRA feel it needs to now advertise aggressively? As any individual knows, the best form of advertisement is word of mouth. If FINRA, and its parent organizations, had performed over the years, they would not now be in the position of having to spend a dime on advertisements.

Against that backdrop, President Obama is throwing around some heavy artillery on the financial regulatory front. I feel strongly that we do not merely need some new weapons, but much more so new generals and a new financial regulatory structure overall.

Bloomberg highlights, Obama Seeks Power for SEC to Prohibit Wall Street Pay Practices:

The Treasury Department today sent Congress legislation that would let the SEC ban “sales practices, conflicts of interest and compensation schemes” deemed harmful to investors. The measure authorizes the agency to remove individuals who violate rules from all aspects of the industry, rather than just a specific segment such as selling securities or managing money.

Who is charged with protecting investors? FINRA.  If FINRA had been performing, would new legislation even be necessary? No way. Rather than new legislation, how about we have a new regulatory body that is not funded by Wall Street firms. Dissolve FINRA and restructure it.

Bloomberg continues:

President Barack Obama’s SEC proposal is part of the overhaul of financial regulations in response to the worst economic crisis since the Great Depression. Lawmakers have vilified securities firms for selling investors unsuitable products and basing pay on how many transactions bankers execute without regard to whether deals succeed in the long term.

Unsuitable products? None more unsuitable and fraudulently distributed than our favorite, that being Auction-Rate Securities.  Last we checked there are still thousands of investors with approximately $165 BILLION ARS frozen.  Dissolve FINRA and restructure the regulatory oversight of Wall Street.  Expose all the firms involved in the ARS fraud, including FINRA itself!!

Bloomberg addresses another hot topic:

The plan targets mandatory arbitration agreements, granting the SEC power to prohibit them in contracts consumers sign with brokers, investment advisers and those who sell municipal bonds. Mandatory arbitration bars customers from suing financial professionals in court.

Who is charged with overseeing arbitration? You guessed it…FINRA. If  all these problems exist within the space FINRA is charged with overseeing, perhaps the problem is as much the overseer as those overseen. Sense on Cents feels strongly that without implementing a dramatic structural change of FINRA, we will largely run in place.

Bloomberg finishes by reporting:

The measure gives the SEC authority to reward whistle blowers who give the agency tips about those violating all securities laws. The SEC currently has power to pay individuals who provide the agency with tips on insider-trading violations.

Retroactively, the SEC should find some manner for rewarding Harry Markopolos for displaying the guts and integrity in pursuing the Madoff scam.

In regard to the ARS scam, perhaps the SEC could send a strong signal to ARS investors by compelling FINRA to release all the details on the sale of its $647 million ARS position in Spring 2007.  If the powers that be at the SEC are unaware of FINRA’s liquidation of ARS, just ask their boss Mary Schapiro, who came from FINRA.

For what it is worth, the SEC still has not responded to my communication with them addressing all these topics.

While Barack, Turbo-Tim, and team want to arm the SEC and in turn FINRA with new tools to cleanse the system, they may want to start by checking  the dirty laundry within FINRA itself.


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