Sense on Cents

Head of SEC, Mary Schapiro

January 14, 2010 at 4pm
U.S. Distict Court for the Southern District of N.Y.
Presiding Justice, Jed Rakoff

Will America learn this Thursday afternoon if SEC Chair Mary Schapiro did in fact lie verbally and in a proxy statement regarding the merger of the NASD with NYSE Regulation to form FINRA?

As I highlighted in my commentary yesterday, “The Financial Crisis Inquiry Commission Should Investigate…”, I believe FINRA and Mary Schapiro are truly the embodiment of the Wall Street-Washington cabal that stifles the truth, transparency, and integrity America so badly deserves.

For more details on this case and the upcoming hearing, I submit the following press release that came out this morning:

MAJOR NEWS ORGANIZATIONS ASK WALL STREET SELF-REGULATOR TO COME
CLEAN ON ALLEGED WRONGDOING AND URGE FEDERAL JUDGE TO UNSEAL
KEY REDACTED FINANCIAL INFORMATION IN BROKERS’LAWSUIT AGAINST
FINRA.

    Mary Schapiro and other NASD Managers Allegedly Lied to and
Shortchanged NASD Member Broker-Dealers in 2006 Merger with
NYSE and otherwise Violated Their Fiduciary Responsibilities.
 

Open Hearing in Manhattan U.S. District Court January 14 at
4 PM.

    In a largely unreported (by the media) Memorandum of Law
filed in November, DOW JONES & COMPANY and THE NEW YORK TIMES
COMPANY asked Judge Jed Rakoff of the U.S. District Court for
the Southern District of New York to unseal key financial
information that could provide evidence of serious wrongdoing
by Mary Schapiro, then president of the National Association of
Securities Dealers (NASD), and other NASD managers and
advisers. The media organizations say it is in the public’s
interest to learn whether Ms. Schapiro, now head of the SEC,
“lied in a proxy statement and in other public statements”
about a merger from which she personally “received an increase
in total compensation of more than one million dollars.”
BLOOMBERG NEWS has also asked Judge Rakoff to provide the
redacted numbers in key IRS correspondence with NASD.

    The news organizations’ Memorandum of Law filed November 6,
2009 by Dow Jones & Company and The New York Times Company
(copy available upon request) speaks to the importance of
unsealing the information and of the underlying lawsuits
brought by two FINRA member broker-dealers. Consider this
verbatim excerpt from the media organization’s Memorandum:

    “The sealed portions of the judicial records at issue here
are of significant public interest because they will reveal
whether the current head of the Securities and Exchange
Commission (SEC), defendant Mary Schapiro, lied in a
proxy statement and in other public statements to more than
5,000 members of the National Association of Securities
Dealers (NASD), when she told them that the Internal Revenue
Service (IRS) would permit a maximum payment to each member of
no more than $35,000 in return for facilitating a planned
merger, when in fact the IRS actually approved a range of
payments that would have yielded significantly greater member
payments. Ms. Schapiro, then head of the NASD,substantially
benefited from than merger, receiving an increase in total
compensation upon completion of the merger of more than one
million dollars.” (see page 5 of Memorandum of Law)

    The media organizations’ filing supports requests by two
NASD member broker-dealers that a document be unsealed and
entered as evidence in their lawsuits against Ms. Schapiro and
other NASD senior managers who allegedly lied to member
brokers about their shares of the proceeds from the 2006 merger
of NASD and the New York Stock Exchange’s self regulatory
organization. That merger created the Financial Industry
Regulatory Authority (FINRA),of which Ms. Schapiro served as
president until she became chair of the SEC in early 2009.  

    Judge Rakoff will hold a hearing open to the media on the
media organizations’ request on January 14, 2010 at 4 PM
(Eastern) in Courtroom 14 B at the United States District
Court for the Southern District of New York, 500
Pearl Street, New York, NY, 11007.   

    The media organizations’ Memorandum also summarizes the
allegations of one member broker, Standard Investment
Chartered, Inc., in its’ lawsuit against FINRA, Mary Schapiro
and others:

    “[T]he complaint asserts that in 2006 and 2007, Schapiro
and the other defendants, seeking to effectuate a proposed
merger of NASD and the regulatory arm of the New York Stock
Exchange (NYSE) to form the Financial Industry Regulatory
Authority (FINRA) and to profit from it, paid NASD members the
equivalent of a bribe to entice them to agree to vote in favor
of a change to NASD’s voting structure that would permit the
merger to proceed. Plaintiffs further allege that Schapiro and
the other defendants conspired to arrive at a payment amount
that would be sufficiently low enough to enable NASD, and
thereby Schapiro and the other defendants, to profit
dramatically from it.  The final piece was for Schapiro to
assert – as she did in the relevant proxy statement
and in other venues – that the $35,000 payment was the maximum
the IRS would permit NASD to make to its members and remain a
tax-exempt entity, when in fact the IRS never ruled that
$35,000 was the maximum allowable cap and indeed ruled
instead, after these statements were made to NASD members,that
a range of payments exceeding $35,000 was permissible. The
complaint also alleges that as a result of the merger, Ms.
Schapiro’s total compensation ballooned from just under
2 million dollars in 2006 to 3.1 million in 2007, and that she
became eligible for an additional 7 to 25 million severance
bonus upon leaving FINRA in early 2009 [to become chairman of
the SEC].  (See pages 3 and 4 of Memorandum of Law.)

This press release is accurate in stating that the story has been largely unreported by the general media.  Sense on Cents, however, has been on the Mary Schapiro and FINRA scent for the last year. Dozens of people within the financial industry have shared with me their incredulity at the wealth of information Sense on Cents has revealed about FINRA under Ms. Schapiro’s leadership.

Is Mary Schapiro a liar? Did FINRA effectively misappropriate –if not steal– tens and hundreds of billions of dollars of member’s funds? This Thursday, we should learn whether the information embedded in FINRA documents can be publicly released and if the truth will out.

LD

This entry was posted on Tuesday, January 12th, 2010 at 12:20 PM and is filed under FINRA, General, Mary Schapiro. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.