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FINRA vs Amerivet Attorneys: Mano a Mano

Posted by Larry Doyle on September 30, 2010 8:29 AM |

Will America ever learn what truly transpired within Wall Street’s self-regulatory organization, FINRA? Will FINRA be allowed to placate its members and America while not addressing the hard questions those constituencies want answered?

FINRA member firms voted overwhelmingly in support of a number of non-binding proxy proposals sponsored by Amerivet Securities. I highlighted the overwhelming vote in my August 14th commentary, FINRA Gets New ‘Sheriffs’; Amerivet Proxy Proposals Approved!! Well, I know that our financial regulatory system is far from democratic but FINRA’s response to the overwhelming votes leads one to believe FINRA looks to redefine the term, “autocratic.” Let’s review the FINRA statement and the counterpunch provided by the attorneys representing Amerivet Securities.

Dear Executive Representative:

As you know from my August 13 email, the FINRA Board of Governors committed to review at its September meeting the non‐binding proxy proposals that had been approved by a majority of firms. Today, I want to report to you on our discussions on these matters and outline the actions the Board has agreed to take.

After careful consideration, the Board instructed FINRA staff to take steps on the following proposals:

• Executive Compensation: FINRA will disclose compensation details for its 10 most highly compensated employees each year. Compensation for 2009 will be reported in the audited annual financial report, scheduled for release later this week. Beginning in 2011, a separate report on executive compensation will be posted on FINRA’s website. FINRA will continue to report the direct and indirect compensation of a broader list of highly compensated officers on an annual basis in its Form 990.

• Investment Manager Disclosure: Beginning with the release of its audited 2009 annual financial report, FINRA will publish the names of the money management firms that it hires to manage its portfolio. FINRA will continue its practice of posting its annual financial report on our website each year.

• Regulatory Proposal Notification: The Board carefully analyzed the proxy proposal with respect to having transcripts of all Board meetings made public and determined that such an action would significantly affect the candor of board discussions. However, the Board recognized the desire by firms for more transparency after Board meetings. To that end, FINRA will communicate to firms and publish on its website rulemaking items discussed and decisions the Board has reached on new rules. The first such notification is included below and available on our website.

The Board’s instructions to FINRA staff took into full consideration both the proposals’ specific recommendations and their underlying call for greater transparency. The Board’s determination with regard to the proxy proposals also reflects its responsibility to ensure the integrity of its processes and deliberations, carry out its fiduciary obligations, and shield FINRA from undue external influence so that we can carry out our important mission of protecting investors.

With that in mind, and understanding that I don’t speak for every Board member, let me set out the reasons why action was not taken on the other four proposals:

Regarding the “say on pay” proposal, the Board believed that it raised serious problems for FINRA because of its potential to create the perception that regulated entities had the power to improperly intimidate regulatory staff. In fact, FINRA’s Management Compensation Committee is composed entirely of public board members for this reason—so that industry governors cannot make recommendations regarding compensation of regulatory staff.

On the proposal to have an independent study of current and/or former FINRA officer and director involvement with the Madoff Family, the Board believes this issue was fully addressed by its Special Review Committee last year, which concluded that no staff relationships with the Madoff family influenced FINRA’s regulatory efforts.

Regarding the proposal to disclose IRS correspondence about the $35,000 NASD member payment, the Board decided that it would not be in the interests of the organization to release the letter, since the information sought is under seal by a federal court. It is important to note that all Board members were thoroughly briefed about the correspondence from counsel before reaching this determination. (LD’s comment: That last statement makes me think board members were concerned about their own personal liability prior to making this assessment. Very interesting.)

The fourth proposal, which requested the creation and employment of an independent, private‐sector inspector general, was rejected by the Board due to the fact that FINRA already has its regulatory operations independently reviewed by a number of entities. FINRA is subject to comprehensive, regular oversight by various divisions of the SEC. Additionally, within FINRA there already exist two offices, Internal Audit and the Office of the Ombudsman, which provide the types of review contemplated in the proposal.

Please know that I am committed to enhancing FINRA’s transparency with firms. To that end, I will continue to update you on key FINRA initiatives and other regulatory matters after each Board of Governors’ meeting and sooner if events warrant.


Richard G. Ketchum Chairman and CEO

Put me in the category of unimpressed. FINRA has displayed an ongoing unwillingness to truly come clean and display real transparency. America gets this. On the other side of the coin, let’s see what the attorneys representing Amerivet have to say.


On August 12, 2010 FINRA Members voted in astonishing numbers for unprecedented reform at FINRA.  The seven proposals, called the Truth, Transparency & Accountability Initiative were designed to address many of FINRA’s recent failures.  Unfortunately, the FINRA Board ignored the mandate of its Members and did not grant even one of the reforms as proposed.  FINRA’s Board:

Will continue to meet in secret and refused to even meet with Amerivet’s counsel;

Refused to permit Members access to the true limit of the Member payment imposed by the IRS;

Rejected the proposal to give Members a non-binding say on the massive salaries of FINRA executives;

Denied Members the opportunity to communicate concerns to a truly independent inspector general;

Shielded facts about the relationships between Mary Schapiro and other FINRA higher-ups on the one hand, and the Madoff clan on the other; and

Refused to disclose information concerning where the proceeds of Members’ dues are invested.

Amerivet will continue to fight for reform at FINRA through the judicial system and by sponsorship of reform proposals at the organization, in the hope of securing meaningful rather than illusory change.

Think FINRA is hiding anything? I welcome highlighting the ongoing donnybrook between those who want real truth, total transparency, and unbridled integrity and those who would prefer to play ‘Mark McGwire’ and not talk about the past.

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

  • B-D

    FINRA would seem to be able to do whatever they want whenever they want. Ombudsman? Are they serious?

  • Vincent

    I can firsthand testify that Finra is a criminal organization. The Ombudsman is a complete and utter joke controlled 100% by Finra lawyers. Here is an email from Teri Reicher (Associate General Counsel) to me about my complaints about a Finra lawyer name Greg Firehock who had been handpicked to “get me” in his own words.

    I represent FINRA and its employees, and your recent email to Ombudsman Cindy Foster was referred to me for response because you discuss possible litigation against FINRA. Any future communications concerning the complaints that were directed to Ms. Foster should be directed to me, and not to her. You should continue to communicate with the Department of Enforcement concerning your ongoing disciplinary case.
    I understand that you are a respondent in an open disciplinary case brought against you by the Department of Enforcement, and that you have complaints about one of the Enforcement attorneys handling the matter. At this point, your disciplinary case is the exclusive forum for you to assert your complaints about how your disciplinary case is being handled. The Securities and Exchange Act of 1934 provides that you must go through the disciplinary process, and if the decision is adverse to you, that you must exhaust all administrative remedies, at the NAC, then at the SEC, and finally at the appropriate United States Court of Appeals. Every court considering the issue has determined that because this administrative appeal process exists, courts lack subject matter jurisdiction over lawsuits involving ongoing disciplinary proceedings. This means that any lawsuit that you file against FINRA for its actions in an ongoing disciplinary matter will be dismissed at the outset.
    If you have an attorney representing you in this matter, I urge you to have him or her contact me before filing suit.
    Terri L. Reicher
    Associate Vice President
    Associate General Counsel
    1735 K Street, N.W.
    Washington, DC 20006
    (202) 728-8967
    FAX (202) 728-8894

    You can see by the tone of this letter, Finra thinks they have the baes covered. Hearing Panel? The Sub Committe chairman is a Finra employee. In my case, Lawrence Bernard. NAC appeal? All Finra members. SEC appeal? Finra and the SEC work arm in arm in this huge cottage industry and many go back and forth like Mary Shapiro. Appeal? Yeah right.

  • Disgruntled BD

    Although the Amerivet proposal vote was remarkable, I fear it will take more firepower to win the war. The largest FINRA members have all the important politicians on their payroll, and most likely prefer the status quo (as evidenced by FINRA voting statistics- the large firms voted against transparency and change). Unless someone has an astonishing piece of evidence or scandalous inside information about FINRA, they will continue their reign as petty tyrants. Disclaimer: This entire commentary only reflects my personal opinion, and does not claim any content as being factual.

    • Howard jahre

      read your message-I agree with you 100%-I am also a small BD and have an idea how to help the small bd’s protect themselves against unduly long,burdensome FINRA enforcement actions.

      If you would like to discuss in confidence,please let me know.

      Howard Jahre

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