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FINRA Investigates Thomas Weisel for ‘Stuffing’ ARS; Will SEC Investigate FINRA for Same?

Posted by Larry Doyle on May 18, 2010 3:21 PM |

More evidence of the fraud surrounding auction-rate securities is exposed this morning in a story highlighting how Thomas Weisel Partners ‘stuffed’ $15.7 million of auction-rate securities into client accounts in order to raise cash to pay bonuses. The Wall Street Journal reports, Weisel Accused of ‘Stuffing’ Auction-Rate Securities:

Finance industry regulators have charged Thomas Weisel Partners and one of its former executives with improperly “stuffing” $15.7 million of auction-rate securities into client accounts in order to raise cash to pay bonuses.

In a civil complaint, the Financial Industry Regulatory Authority said the San Francisco investment firm allegedly sold auction-rate securities from its own account to three accounts it managed on behalf of clients. Weisel received cash for the securities, which paid interest rates slightly higher than money-market accounts.

Finra said Weisel made the sales to its clients in early 2008 after it became concerned about the auction-rate market, and without obtaining its clients’ prior approval.

When the market crashed weeks after the sales, Weisel’s clients were stuck with millions worth of auction-rate securities they couldn’t sell, according to Finra.

The regulator said Weisel used the cash from the deals to pay employee bonuses.

All the details of this Weisel ‘stuffing’ deserve to be addressed and made public. Justice needs to be served. When bad behaviors are not properly addressed, they perpetuate. How many more millions, if not billions, of ARS were ‘stuffed’ into discretionary accounts? Those stuffings must be exposed, as well.

In this vein, will the details surrounding FINRA’s own liquidation of $647 million in auction-rate securities in 2007 ever be exposed? Where were those ARS ‘stuffed?’ To unearth this ‘stuffing,’ FINRA must agree to the following:

1. Release all the details surrounding its liquidation.

2. Agree to an independent investigation of its liquidation.

3. Accede to an SEC review and investigation.

In order to facilitate this process, I am happy to inform readers of Sense on Cents that I recently shared with an appropriate person within the SEC’s Office of Compliance Inspections and Examinations all details which I have unearthed on the FINRA liquidation.

Both FINRA and the SEC owe each and every auction-rate securities investor answers and details regarding FINRA’s liquidation of ARS. Did FINRA possess material, non-public information and act upon it in the liquidation of its ARS holdings?

Why do I continue to bang the drum on this topic? The integrity and credibility of both our financial regulators hang in the balance. To me, that is more than enough reason.

If you need more reasons, I can count another 150 billion as well. For a wealth of information, please access FINRA/ARS.

LD

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