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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.


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  • Don Kanjen

    Yes, many of the firms knew the auction rate market was going to crash before it did. I spoke to my Oppenheimer broker a week before the crash. He was nervous, his voice was breaking; What’s wrong? I asked. “I’ve known you 18 years, you’ve never sounded like this?” “I’m fine” he said.

    In my opinion, he knew that in a few days the auction rate market was going to collapse. He could have warned me. He did not.

    • phil trupp

      It’s familiar story: the broker just didn’t know. This line has been pushed by virtually every broker-dealer. How could brokers not know the ARS market was in trouble and still claim to be professionals? Surely your broker knew the market was crashing, that it was showing deep cracks in 2006. If he didn’t know,then he was negligent. If he did know and said nothing, he was a liar and a con man.

  • Kathy

    I found this Weisel story interesting for the same reason: The brokerages ALL KNEW. That’s why they were pushing ARS off on unsuspecting small investors in early 2008. Corporations were turning away from the market, and they didn’t want to be stuck with them.

    Larry is absolutely right to stick with Finra. What a travesty that Finra has led arbitrations, when it engaged in nefarious ARS actions itself.

  • disenchanted

    With Mary Schapiro at the head of the SEC, do you really think the SEC will investigate FINRA? That would be professional suicide. And why should they, since FINRA was awarded absolute immunity by our learned Judge Rakoff.

  • John W

    It seems my Auction Rate Security money works great for everyone except me.

    Closed end funds like Nuberger & Berman, Advent Claymore, Blackrock, Van Kampen, Eaton Vance and Pimco get to use my money and lever it up 35:1. They buy long term bonds so their common share investors can profit from the spread between the long term rates and the 0.75% they have been paying me.

    By the way they call me a preferred share holder.

    Companies like Oppenheimer and E*Trade bring my shares to auction every day and collect a fee for this, every day, even though all the auctions fail. To date I estimate they have made over $100 million, since the market collapsed, on the billion dollars worth of their customers ARS they are holding,

    Now there are opportunistic investors waiting ’till I quit this insanity. They will buy my shares, at a steep discount, and accumulate enough shares in a specific fund to be able to pressure that fund to redeem at par. I’m left to go to arbitration to get the money I lost in that sale back. My ARS money seems to work fine for them.

    Like Harry Newton, when this first happened I thought it would be over in no time. How could something as simple as a money market equivalent turn into a year long nightmare. Surely there would be legal authorities to step in and straighten this out. After all we have the SEC, FINRA, Attorneys General in every state, and all these companies that sold ARS. Surely they would do the right thing and honor the terms they used to sell me this stuff. I naively believed that there was a little integrity in [these]companies. How stupid was I? I was made to sign an arbitration agreement when I gave E*trade my money. This didn’t seem like a big deal, why would I ever need it? Well they don’t make you sign one of these because arbitrations favor you.

    FINRA runs these arbitrations. As of the end of 2007 they owned $650,000,000.00 worth of auction rate securities. They never mentioned this as a potential conflict of interest. Why did they buy them? Did they understand the risk? Who did they buy them from, Oppenheimer? Did they sell them or are they stuck like me? If they sold them, when did they sell them, why? Does this have anything to do with FINRA’s lame effort in doing its job to protect investors?

    I was told that if I wanted to file a complaint against FINRA I had to do this with the SEC. Guess who’s the head of the SEC, Mary Shapiro, the former head of FINRA who was in charge when they bought auction rate securities. I’m real confident filing a complaint with them. My AG walked away from auction rate securities right in the middle of his investigation. All I signed on for was a simple savings vehicle. I was saving money for my wife and I to build a home. We all know the story from here.

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