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BREAKING NEWS: Amerivet Complaint Against FINRA Alleges Madoff Investment

Posted by Larry Doyle on August 25, 2009 10:47 AM |

Two weeks ago, Amerivet Securities filed a complaint against FINRA (Financial Industry Regulatory Authority), the Wall Street self-regulatory organization. This morning, Donna Mitchell of Financial Planning provides further insight on this complaint. Ms. Mitchell writes FINRA Rebuffs Amerivet’s Demand to Inspect Records. She reports:

The Financial Industry Regulatory Authority (FINRA) says it will not open its books and records to inspection by Amerivet Securities, the California brokerage firm which recently sued the regulator.

“We disclose a great deal of public information in our annual reports, far more than we are required to do,” says Herb Perone, a spokesman for FINRA. “Our records are not open for public examination.”

Sense on Cents questions why any financial self-regulatory organization mandated to protect investors would not be required to fully open all of its books and records for public review. Additionally, having extensively studied all of FINRA’s annual reports as well as those of its predecessor, the NASD, I echo the questions being raised by Amerivet. Does FINRA have any appreciation for the need for total truth and transparency in our markets and economy? The questions beg: why won’t FINRA fully open its books? are they trying to hide something? do they have reason to be concerned?


Financial Planning continues:

The request for records is part of a civil suit filed Aug. 10 in the Superior Court of Washington, D.C., by Inglewood, Calif.-based Amerivet Securities. It stems from a July 23 letter sent to FINRA from Amerivet, in which the company initially asked to review FINRA’s documents.

In the lawsuit, Amerivet accuses FINRA of a litany of wrongdoings, from mismanaging the organization’s investment assets to placing substantial funds with Bernard L. Madoff Investment Securities, the former broker-dealer and investment advisory firm that was brought down amid a $65 billion Ponzi scheme.

WOW! The allegation of an investment by FINRA in Madoff is a BLOCKBUSTER. What information did Amerivet and its legal representation unearth to make this allegation? This information must be revealed and FINRA must open its books and records to address this charge. (Click on image to access copy of Amerivet complaint)

Financial Planning further reports:

Amerivet also alleges that FINRA failed to regulate and oversee the operations of large securities firms such as the former Bear Stearns & Co., the former Lehman Brothers, Merrill Lynch & Co., and Stanford Financial Group.

Amerivet also claims that FINRA overpaid its executives, sustained investment-related losses of $568 million and separately incurred substantial losses in the auction-rate securities market. “FINRA has failed in what it represents in its advertising to be its core function, i.e. the protection of investors,” Amerivet says in the lawsuit.

Is there any doubt that FINRA has failed to protect investors? Is there any doubt that senior executives at FINRA were paid handsomely?

In regard to the auction-rate securities allegation, is Amerivet maintaining that FINRA lost money on the ARS which it owned or is Amerivet referring to money lost by investors? Details of FINRA’s liquidation of ARS in 2007 must be released. Did FINRA front-run the market in the course of selling its own ARS?


Financial Planning gains a degree of insight from FINRA and reports:

FINRA would not comment about the lawsuit directly, but Perone said the organization had steered clear of investing with Madoff.

“As for any claim or question as to whether we had money invested with Madoff, we had no investments of any kind in Madoff or in any of its feeder funds,” Perone said.

The allegations and implications of the Amerivet complaint strike right at the core of our financial regulatory framework. Any credible media outlet should be running the Amerivet complaint as a lead story.

The American public deserves answers.



Related Sense on Cents Commentary:

Amerivet Securities Files Complaint vs. FINRA for Release of Investment Information and More (August 17, 2009)
FINRA Must Play by Its Own Rules (August 19, 2009)


UPDATE as of 11:20AM – Financial Planning has removed from its website the article referenced in this post. I am in the process of receiving the actual Amerivet complaint and will review it and comment later this afternoon.

UPDATE as of 12:05PM – I just received a copy of the Amerivet Securities vs. FINRA complaint.  See pages 8-9, points #24-28 for details regarding the allegation that FINRA was invested with Bernie Madoff.

  • beach

    LD, who is Donna Mitchell and what is Financial Planning? Do you think she was pressured to remove her article? If so, by whom?

    You are always on top of the breaking news Larry!

    Thank you for your great work!

  • fiscalliberal

    A comment form a former radio guest on Madow Investors might be interesting on this topic. I would think they might go after FINRA in terms of conflict of interest if FINRA had Madow investments.

    This is all murky, however the potential conflict of interest is realy big.

    • Larry Doyle

      In the inimitable words of Ricky Ricardo, FINRA has “some ‘splainin’ to do…”

      In the inimitable words of one Bill ‘Bu” Doyle, Sense on Cents will “keep punchin’…!!”

      The temperature is continuing to rise in the FINRA kitchen.

  • Great, great stuff Larry. This story just keeps getting more and more interesting. It truly is stranger than fiction. I have always wondered what is the nature and extent of the relationship between Mary Schapiro (current SEC Chair & previous FINRA Chair) and Bernard Madoff? As this complaint says, Schapiro appointed Madoff’s son Mark Madoff to the NAC, which oversees FINRA, when she was Chair of FINRA. Schapiro also had to have known Bernard Madoff personally through the NASD, which they were both heavily involved in as FINRA was a spin-off of the NASD. You are so right that FINRA’s books have to be opened, and both FINRA and the SEC have to be investigated and charged with gross negligence in the Madoff Ponzi Scheme. The only option may be to “clean house” at both organizations and start over.

  • “upon information and belief” “impossible to verify” “direct or indirect investments with Madoff…”

    Doesn’t sound like they have anything to support the Madoff allegation, but that is what discovery is all about. Almost a safe bet, since FINRA invests in private equity and funds, that it had an indirect investment with Madoff. That doesn’t mean they knew about it.

    But a very interesting case nevertheless. I am particularly interested in FINRA’s response to the allegation about Shapiro’s 7 million dollar bonus.

  • Bill

    It’s axiomatic that FINRA’s books should be wide open. I have undertaken to explain the FINRA/ARS conundrum to a number of people. Even before I finish explaining what FINRA is, I can see their eyes glazing over and brains shutting down. They don’t comprehend how they as investors can be impacted by having a corrupt regulator administering their claims against corrupt brokerages and brokers. Those having gone through the auction rate mill have a full and complete appreciation.

  • kd

    so what is the story? is that part of the complaint? I couldn’t access the link….

  • Larry Doyle

    KD…I actually copied the entire FP story prior to its being taken down. That story in its entirety with quotes from FINRA spokesman Herb Perone is part of this post.

    The actual complaint filed by Amerivet v FINRA can be accessed by pointing and clicking on it.

    Hope this clarifies.

  • Dennis

    Why is this story not worthy of national news coverage? Maybe it’s only interesting to those of us who actually know first-hand how corrupt and inept FINRA actually is, or have actually been wronged by FINRA’s self-preservation tactics. I hope I am wrong and that the public might actually care that the cause of the financial crisis may have been caused, at least in part, by FINRA’s ineptness and self-preservation conflicts. Neil Cavuto is one reporter that has the following and support (FOX News) to allow this story gain traction. Major Garret, no doubt, has the courage to ask the tough questions, but I doubt this would be something he would pose to “the puppet Gibbs”. With regard to the lawsuit, I hope I am wrong, but I am afraid that the liberal courts will continue to give FINRA an undeserved pass and the brokerage community and the investing public will have to continue to live with a system defined by ineptitude and a an attitude of arrogant omnipotence.

  • Larry Doyle


    I agree with you. This story deserves national coverage and total transparency. Will it receive it?

    We shall see.

    Please share it with your colleagues and associates.

  • Dennis

    And by the way, did anyone else pick up on the fact that Herb Perone said he wouldn’t make FINRA’s books available “to the public”, when in fact it was not the public that requested them, it was a FINRA member! You would think the members would have a right to inspect the books of its own organization. The truth is, it is no longer a self-membership organization, but has become an elitist-run bureaucracy. FINRA denies it’s members constitutional due process by claiming that it is a private membership organization yet claims absolute immunity from lawsuits because, when it suits them, they claim they are a quasi-government institution. Interestingly, whenever very deep pockets threaten a court action over this two-sided position the SEC reverses FINRA and the case gets dismissed. Hmm… I suppose if you have deep enough pockets you get justice. Do you think maybe they know they would lose and don’t want to jeopardize their despotism? Well I say that FINRA must either act as a government organization and provide its members constitutional rights, or act as a private membership organization and be subject to lawsuits for their negligence, but no longer can they have it both ways.

  • Larry Doyle

    Dennis….BINGO!!! You have hit the nail right on the head!! Thanks for highlighting this phenomena with FINRA.

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