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FINRA and ARS: Pot Calling Kettle Black

Posted by Larry Doyle on January 25, 2010 2:34 PM |

Thanks to a loyal Sense on Cents supporter for sharing the most recent copy of Compliance Reporter, a publication of Institutional Investor, Inc.. The lead article this week,  FINRA Readies Slug of Enforcement Cases, addresses the fact that FINRA:

is targeting a slew of enforcement actions across a range of areas, including reverse convertibles and auction-rate securities.

Oh boy, here we go again. FINRA talking tough about auction-rate securities. Additionally, FINRA further flexes its muscle by:

warning firms that strained layoffs and resources are no excuse to delay responses to FINRA’s request for document production requests.

This self-regulatory organization has truly got some set of balls talking about delayed responses to requests for documents and information. Do you think the thousands of investors with upwards of $150 billion in frozen ARS may like to see the documents and information relating to FINRA’s liquidation of its own $647 million ARS position in mid-2007? Yes, mid-2007 as the ARS market had started to fail. You think?

How about if FINRA releases its own trade tickets and details regarding that sale? Why won’t they turn the tables on themselves and release this information?

The Compliance Reporter continues and offers:

FINRA also has deepened its investigation of the ARS market. The SRO soon will issue settlements and formal complaints against firms that Merrill (FINRA’s chief of enforcement ) said engaged in self-dealing by dumping their ARS holdings when the market began to freeze but failing to change the way they marketed the product to retail customers.

Who was charged with protecting investors at that point and who is still charged with protecting investors now? Yes, FINRA, the Wall Street self-regulatory organization which did not post on its own website the fact that the ARS market was failing until it had totally frozen in early 2008. Some protection. Friends like this who needs enemies.

Who within FINRA is going to have a conscience and address the question Sense on Cents has been asking since last April? Who may have left FINRA but has details of this liquidation and is willing to share them? Let’s see the details of FINRA’s own sale of ARS in mid-2007.  Anybody at FINRA feeling a little anxious knowing that the organization liquidated $647 million of these supposed cash equivalents onto some unsuspecting investors? America is screaming for transparency and integrity. Who at FINRA has the courage to provide it?

FINRA has never provided one shred of meaningful evidence supporting the fact that it liquidated its ARS position without knowledge that the market was freezing. To think that FINRA did not know the market was freezing when it liquidated its bonds defies logic. The fact that FINRA has never provided any details about its sale speaks VOLUMES!!

Now it has the balls to issue complaints about self-dealing by other dealers. Who is to say that those dealers did not dump their ARS positions after having seen FINRA dump its bonds? Or perhaps more likely, FINRA dumped its bonds after seeing other dealers dump their bonds.

The stench surrounding FINRA’s ARS liquidation has not lessened with the passage of time. That stench has only gotten worse and is pervasive in the market. It will only be exterminated with the release of details by FINRA regarding its ARS liquidation in mid-2007.

When will FINRA release the details?

I’m going nowhere until they do.

Any institutional or individual investor still holding frozen ARS positions, I encourage you to join with me in calling for the release of this information.


For newer readers of Sense on Cents, access information on FINRA, auction-rate securities, FINRA’s Annual Reports, and lawsuits against FINRA via the search window on every page here at the site. America deserves to know the underside to Wall Street’s SRO.

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