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“The Lack of Transparency and Accountability at FINRA Is Absurd”

Posted by Larry Doyle on December 10, 2010 6:46 AM |

I detest those people and organizations paying mere lip service to issues needing real transparency and accountability.

I love having the voice provided by Sense on Cents so I can highlight a wide array of these issues and so people can more effectively navigate the economic landscape. I also love being able to ask the hard questions and call out those whom I think are not serving the public interest.

What else do I love? I love when a voice far stronger than my own echoes my thoughts, shares my opinion, and blasts away in pursuit of real truth, transparency, and integrity along our economic landscape.

With only a few exceptions, the media as a whole has shown itself unwilling to truly take the gloves off and go after the aforementioned ‘lip serving’ individuals and institutions. Independent watchdogs in pursuit of good government are far more aggressive.

On this note and against this backdrop, I have to admit my adrenaline picked up yesterday. How so? Let’s navigate as I was informed of the following:

The Project on Government Oversight (POGO) was once again calling out the organization–that is FINRA– that many think has protected Wall Street far more than it has protected investors as it is charged. The last two days POGO put forth the following:

December 9, 2010

The Project On Government Oversight (POGO) is calling on the nation’s largest financial self-regulatory organization to make its Board meetings open to the public.

In a letter sent yesterday to the Chairman and CEO of the Financial Industry Regulatory Authority (FINRA)–a private self-regulatory organization that oversees and is funded by over 4,600 securities brokerage firms–POGO urged FINRA to make itself more open and accountable to its members, investors, and taxpayers.

“The lack of transparency and accountability at FINRA is absurd given its role in regulating brokerage firms,” said POGO Executive Director Danielle Brian.” After the Wall Street collapse we simply can no longer allow the financial industry to regulate itself behind closed doors.”

FINRA’s members recently approved several proposals to reform FINRA, including a proposal to provide transcripts of Board meetings. But FINRA’s Board rejected most of these proposals, and continues to conduct its meetings behind closed doors.

The Dodd-Frank financial reform law requires the Government Accountability Office and Securities and Exchange Commission to consider whether self-regulatory organizations such as FINRA should assist with the oversight of hedge funds and investment advisers. POGO wrote in its letter that it would be “foolhardy” to give an organization such as FINRA more authority without also requiring it to be more transparent and accountable.

Follow the link to view POGO’s FINRA resource page, including POGO’s previous letter to Congress raising concerns about FINRA’s excessive executive compensation, its “incestuous relationship” with the securities industry, and its failure to regulate the misconduct of past members such as Bernie Madoff, Allen Stanford, Bear Stearns, and Lehman Brothers.

I love it. In my opinion, FINRA has continually snubbed its nose at many of its smaller member-firms, investors, and the American public at large when it has come to a host of issues which these constituencies want and deserve to have addressed. What is one of these issues? Well, POGO addresses the concern which I highlighted in my commentary yesterday on Bernie Madoff.

POGO is also concerned by the Board’s wholesale rejection of other proposals approved by FINRA’s members. According to the letter recently sent to FINRA’s members describing the Board’s decision:

The Board is satisfied with a report issued by a special review committee which found no inappropriate connections between FINRA and the Madoff family

I have written extensively on these issues. POGO shares my sentiments and I share POGO’s. Will FINRA respond to POGO’s letter from yesterday? To whom was the letter addressed? Whom was cc’d on that letter? Upon further review, we learn the following:

December 8, 2010

Richard Ketchum
Chairman and Chief Executive Officer
Financial Industry Regulatory Authority
1735 K Street
Washington, DC 20006

Dear Mr. Ketchum:

The Project On Government Oversight (POGO) is writing to urge you to bring more transparency and accountability to the Financial Industry Regulatory Authority (FINRA). As a first step, we call on you to fulfill the mandate from FINRA’s members to make FINRA Board meetings open to the public…..

For those interested in the entire letter, you can access it here.

Sincerely,

Danielle Brian
Executive Director

cc:        SEC Chairman Mary Schapiro
House Committee on Oversight and Government Reform
House Committee on Financial Services
Senate Committee on Banking, Housing, and Urban Affairs
Senate Committee on Homeland Security and Governmental Affairs
FINRA Board of Governors
FINRA Members

This is beyond good.

KEEP the PRESSURE ON!! FINRA OWES AMERICA SO MANY ANSWERS!!!

I commend POGO for calling FINRA out and for putting these other individuals, committees, and constituencies on notice. As for Sense on Cents’ calls for greater truth, transparency, and integrity within FINRA and at every other point along our economic landscape, I can assure you, two years in and …..I’m just getting started.

What do you think? Comments, questions, constructive criticisms always encouraged and appreciated.

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.

  • Read This

    Why would an investor ever want to do business with an investment adviser or money manager affiliated with an entity that also has a broker-dealer?

    New FINRA Rule Could Cause Headaches for Hybrid Advisers

    “Under the new rule, a firm doesn’t have to supervise the outside business, he said, “but it has to make a threshold determination as to whether [it is] going to allow that business … It simply [tells firms to] assess” it.

    In response to comments, Finra backed off from earlier language that would have required its members to determine if an outside business activity raised investor protection concerns.

    Industry commentators howled at that idea, and Finra amended its proposal in August, replacing the investor protection review with the “viewed by customers” language.”

    Look at that emboldened sentence. That says it all as to what and whom FINRA protects.

  • MS

    “The public owes you a debt of gratitude for all you’ve done over the years to highlight FINRA’s lack of transparency and accountability.”

  • Disgruntled BD

    LD, you are asking for transparency from an organization that does not value basic freedoms or dignity. I run a small FINRA-member broker dealer with no history of customer complaints or violations. Earlier this year, we were subjected to a ‘routine’ audit that left us feeling like gutted fish. At one point, a FINRA examiner sat down to review our email accounts, and in some instances compelled me to print emails that clearly had no content relating to firm business (strictly personal in nature). Contrariwise, despite historic gaffs, FINRA has thus far been immune from all legal challenges and media scrutiny. Any attempts at reviewing pertinent communications or other documents (such as the infamous IRS letter) have been casually brushed aside. I actually fear additional scrutiny directed towards FINRA, because it would merely result in harsher audits and additional rules for small firms to follow (such as the requirement for PCAOB audits of sole propreitor / limited business firms). I voted for the above-referenced Amerivet proposals, as well as the turncoat “independent” small firm board members. POGO has been a fairly vocal critic of FINRA for some time. Where are the results??

  • Alex Green

    FINRA AND THE SEC ARE WORKING UNDER A Mandate TO CLOSE DOWN AS MANY SMALL BD’S AS THEY CAN. THE LARGE BD’S LIKE JP MORGAN CONTROL THE Regulators.

    • Disgruntled BD

      I have been hearing this for many, many years. And, of course, I believe every word of it. I’m sure that FINRA would love to shut down the small firms, especially the old holdover sole props. But they will have to try damn hard to get rid of me. Even if I am not profiting from the firm, I will not give it up! I’m simply too stubborn.

  • EM

    Remember that “Nine Million Mary” (actually it was only $8,985,339) was the head of the Commodity Futures Commission in 1994.

    I believe the next big financial debacle will be in the area of derivatives that are all “air bets” meaning that those gambling (not investing) on the future shifts of the market, have no stake in the commodity, only in whether it goes up or down.

    If they bet wrong (and sooner or later all gamblers place a losing bet) the market will collapse, and the taxpayer will be asked to bail out more Eastern Financial institutions, because, after all “they are too big to fail.”

  • Latoya Bridges

    LD, you are asking for transparency from an organization that does not value basic freedoms or dignity. I run a small FINRA-member broker dealer with no history of customer complaints or violations. Earlier this year, we were subjected to a ‘routine’ audit that left us feeling like gutted fish. At one point, a FINRA examiner sat down to review our email accounts, and in some instances compelled me to print emails that clearly had no content relating to firm business (strictly personal in nature). Contrariwise, despite historic gaffs, FINRA has thus far been immune from all legal challenges and media scrutiny. Any attempts at reviewing pertinent communications or other documents (such as the infamous IRS letter) have been casually brushed aside. I actually fear additional scrutiny directed towards FINRA, because it would merely result in harsher audits and additional rules for small firms to follow (such as the requirement for PCAOB audits of sole propreitor / limited business firms). I voted for the above-referenced Amerivet proposals, as well as the turncoat “independent” small firm board members. POGO has been a fairly vocal critic of FINRA for some time. Where are the results??






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