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Did Mary Schapiro Engage in a Fraud?

Posted by Larry Doyle on January 3, 2012 10:22 AM |

Will we learn in 2012 if Mary Schapiro, current chair of the SEC, and other then senior executives at the Wall Street self-regulatory organization, FINRA, engaged in a fraud?

The case addressing this question, Standard Chartered v FINRA, has been appealed to the highest court in our land.

As such, one might think that most Americans would care to learn if our nation’s top financial regulator did, in fact, engage in a fraud which had a monetary value of between $175-$350 MILLION plus. That’s right, $175-350 million plus!! Not exactly chicken feed.

Why hasn’t this case received more attention? 

For the very simple reason that our major financial media have spent little to no time focused on it. If you don’t think our media is controlled in this country, then you may want to ask why this case has not received more meaningful coverage.

I first addressed this case in the fall of 2009. I personally believe it belongs on the front page of every business section in our country. Why? This case addresses the core of what I have long defined as the Wall Street-Washington incest. That $175-350 million which FINRA retained rather than having appropriately distributed to its member firms allowed the major firms on Wall Street and selected FINRA executives to benefit at the expense of smaller broker-dealers. Sound a little incestuous perhaps? You think?

More importantly, this case addresses the fact that Ms. Schapiro and her fellow FINRA colleagues signed a proxy statement used for the merger of the NASD with the regulatory arm of the NYSE to form FINRA that included misinformation. If utilizing a proxy statement which includes misinformation is not an abuse of capitalism and a fraud, I do not know what is.

My link above references a whole host of angles in this case and other FINRA and assorted partners’ ‘incestuous’ follies. I strongly recommend you review this wealth of material. You will be busy, but you certainly will not be bored.

Are you sufficiently intrigued to learn a little more about this situation? Let’s navigate and review a recent commentary written by Dan Jamieson of Investment News. Dan writes, B-D Wants Supreme Court to Rule on FINRA Suit:

The high court this month is expected to decide whether to take up a lawsuit brought against NASD by Standard Investment Chartered Inc. over the self-regulator’s 2007 merger with the regulatory unit of the New York Stock Exchange.

Standard, an investment banking boutique, insists that the proxy used by the NASD in soliciting member approval for the merger was fraudulent.

NASD since has been renamed the Financial Industry Regulatory Authority Inc.

Government entities, including private organizations with government-delegated authority, generally enjoy absolute legal immunity in performing official duties. Court cases have granted protection specifically to securities self-regulatory organizations.

Absolute immunity covering a financial transaction? Sniff, sniff. Do you smell something? Me, too.

Standard argues that the merger was not a legally protected regulatory function of Finra.

The brokerage firm wants the Supreme Court justices to hear that case because it claims that lower courts have issued conflicting opinions on immunity for SROs and other state actors.

The Standard suit has already been thrown out twice by courts — in 2010 by a New York U.S. District Court judge and then again last year by the 2nd U.S. Circuit Court of Appeals.

But the Supreme Court could take a different view. In June 2010, it ruled that the Public Company Accounting Oversight Board, a private oversight body set up under the Sarbanes-Oxley law, was unconstitutional because its members were not sufficiently overseen by the executive branch.

The Standard appeal has attracted an unlikely assortment of allies among business and consumer groups.

“The case presents a situation where a quasi-governmental entity is abusing its power,” said Ilya Shapiro, a constitutional lawyer at the libertarian Cato Institute, which joined with the Competitive Enterprise Institute in filing an amicus brief on behalf of Standard.

“Our legal interest is really to make government accountable,” he said.

There’s a larger principle at stake: to what extent state actors can be held accountable, said William Anderson, one of Standard’s lawyers at Cuneo Gilbert & LaDuca LLP. “That’s why the various groups have weighed in” with amicus briefs, he said.

“We’re concerned about the court’s overextension of immunity” to private organizations, said Scott Michelman, a staff attorney at the Public Citizen Litigation Group, which, together with Consumer Action, The Project On Government Oversight and the U.S. Public Interest Research Group, also is urging the Supreme Court to take the case.

“In this case, immunity has been extended to private corporate actors … in a way that could prevent corporate accountability,” he said.

Standard and its supporters dispute the earlier court findings that NASD’s proxy and merger were “incident to” its regulatory activities and thus protected.

The Cato Institute argues that such a standard “would be the equivalent of shielding a judge who ran down a pedestrian on his way to the courthouse simply because his travel there eventually will lead to his exercising judicial power.”

Courts first gave SROs legal protection in 1985, and the breadth of that immunity has expanded ever since, according to Standard’s supporters.

“It seems to me that what [Finra was] doing was acting as a business entity rather than as a regulator,” Mr. Shapiro said.

Jack Norberg, chairman of Standard, did not return a call seeking comment.

For its part, Finra insists that there is no issue with immunity for SROs.

“Every court of appeals to consider the issue has agreed that SROs are absolutely immune from private lawsuits for money damages attacking conduct that falls within the scope of their regulatory functions,” Finra said in a filing with the Supreme Court.

While FINRA’s lawyers have continually embraced their position on immunity, NOT ONCE have I ever heard or seen these lawyers or Ms. Schapiro address and categorically deny the premise of a fraudulent proxy. What say you, Mary? Did you and your colleagues willingly and intentionally misrepresent, that is LIE, in regard to the facts presented in that proxy?

Finra spokeswoman Michelle Ong declined to comment.

No surprise there. No transparency there, either.

The 2007 merger required NASD members to approve bylaw changes that significantly reduced their voting power in the new organization.

NASD was able to get the changes approved with the help of a one-time $35,000 payment. Standard claims that NASD lied in its proxy and other communications when it claimed that $35,000 was the most it could pay under IRS rules.

An IRS opinion letter laying out permissible amounts that could be paid to broker-dealers to approve the merger has been subject to a court-ordered seal, but in a 2009 hearing, one of Standard’s attorneys said the letter indicated that member firms could have received an additional $35,000 to $76,000.

An additional $35-76k multiplied by 5100 member firms equates to a cool additional $175-350 MILLION plus!!

If the Supreme Court takes the case and rules for Standard, the dispute could go back to lower courts for rehearing, and member firms could possibly get a larger payout, Mr. Anderson said.

One would think a ruling for Standard would also expose Ms. Schapiro and the other defendants in this case for having perpetrated a fraud. What are the ramifications of that? Or is that potential too explosive and unseemly for our nation in its current state? Are we that weak and pathetic?

Where are America’s collective balls? Come on. How about we create some public pressure? Share this commentary as wide and far as possible. Our founding fathers would thank you.

But some doubt that the Supreme Court will let that happen.

“SROs are immune — that’s the law,” said Jonathan Kord Lagemann, a veteran industry defense attorney and founder of the Lagemann Law Offices.

“Whether it should be that way is another story.”

Of course it SHOULD NOT be that way. Providing the cover of absolute immunity for misrepresentations within proxy statements by senior financial regulators is no way to run a country.

Remember, absolute immunity without total transparency is a license to steal . . . perhaps even as much as $175 million.

Larry Doyle

Isn’t it time to subscribe to all my work via e-mailRSS feed, on Twitter or Facebook?

Do your friends, family, and colleagues a favor and get them to do the same. Thanks!!

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets, our economy, and our political realm so that meaningful investor confidence and investor protection can be achieved.


  • divman
    • LD

      Instant classic!! Thanks for sharing that.

  • Randy

    Good points once again… but do you still think our joke of a Supreme Court is going to take Schapiro to task and agree that she and FINRA engaged in fraud? I certainly don’t.. though I certainly support your long held position that she should be dealt with properly if such a fraud was truly perpetrated.

    As to the lack of media attention.. .it is quite obvious… In 1983, 90% of all media was owned by 50 companies, however as of 2011 90% is controlled by just 6 companies: General Electric; Disney; News Corp; Time Warner; Viacom; and CBS (from the article Media Consolidation: Illusion of Choice at the following link:

  • EM

    If Mary Schapiro and Finra are convinced they acted properly, then they should welcome the opportunity to receive public justification by the highest court in the land.

    They are attempting to avoid public disclosure of the facts.

    Finra likes keeping secrets. It protected Bernie Madoff by failing to act upon the whistle blowing letters. Was Bernie Mary’s friend? It has so far protected another Ponzi specialist, Allen Stanford.

    On the one hand Finra claims to be a government agency – to avoid disclosure of the facts regarding the false proxy statement.

    On the other hand it claims to be a private firm that is able to pay enormous multi-million dollar “severance” benefits when Mary went from Finra to the SEC. You can’t have it both ways!

    Somewhere I hear: Conflict, Secrecy, Privilege, Incest, Boondoggle. And the words are growing louder…..

  • DJ

    Larry –

    Thanks for keeping what is arguably the most important case of this new era in front of us.

  • Andrew

    Continued great work. Keep their feet to the fire!

  • Bill

    Just another case of legalized theft.

  • Peter S.

    SEC Enforcement Director Robert Khuzami will be sitting on a panel with a former SEC Director of Enforcement, Stephen M. Cutler. The panel will be discussing whistle –blowing. I s#%t you not – you can’t make this stuff up.

    I myself have had issues with Mr. Cutler in my first whistle-blowing and most recently had him deposed in the U.S.Attorneys Office in Boston by Samuel Morris of the SEC Office of Investigative General.

    Reading from the deposition in the highly redacted report Mr. Cutler committed perjury. And the lying pu#$y has the audacity to sit on a public panel with kudos being given to his service to our nation – I mean the disservice to our nation so his family may benefit grotesquely.
    Mr. Cutler is the soul selling former SEC Enforcement Director that had Madoff in his grasp in 2001, who ruined the careers of multiple whistles – blowers, including members of his own staff, all to collect on the pay back. JPMorgan gave $18,000,000 in stock on the very first day on the job and another $14,000,000 million 363 days later.
    I will be bringing my second whistle –blowing to the public’s attention before Cutler perjury statute of limitations expires in March.

    He should have been dropped on Congress’s door step long ago – let’s see if I can help with the process. Cutler is no better than Madoff . How do you like that Stevie “the Coward” Cutler.

    • LD


      You write,

      Mr. Cutler is the soul selling former SEC Enforcement Director that had Madoff in his grasp in 2001, who ruined the careers of multiple whistles – blowers, including members of his own staff, all to collect on the pay back. JPMorgan gave $18,000,000 in stock on the very first day on the job and another $14,000,000 million 363 days later.

      I will be bringing my second whistle –blowing to the public’s attention before Cutler perjury statute of limitations expires in March.

      How exactly do you know what Mr. Cutler received from JPM? Is that public information? Can you share it with us?

      You also write that you are bringing your second whistle-blowing case prior to this March. Can you share details of the first case? Is there any public info on that case?


  • fred

    Forget about Standard Charter vs. FINRA, the ‘Wall Street’ related case going to the Supreme Court should involve losses suffered during the Flash Crash aka ‘unexecuted Bid- Ask orders causing undesirable trade executions’.

    I’m not sure exactly how or when order execution on limit orders shifted from being triggered by actual trades to unexecuted bid-ask orders, but it has cost investors and the capital markets $BILLIONS.

    Every day ‘mini flash crashes’ continue to occur, but the only time you will hear about it is when the major indexes and big institutional investors are involved. Try to purchase or sell any security with trading volume under 25,000, there is no way you can control the price you get, NONE.

    Let’s say you want to buy or sell XYZ security at $10.00 so you put in either a stop order or a buy limit order. The price you get can be determined by unexecuted orders whose only purpose is to trigger trades; maybe a bid of $5.00 with an ask of $15.00. All this can happen while trade prices on the day remain fairly stable between a low of $10.10 and a high of $10.20.

    In the case of either of your orders, the stop or the limit, you wouldn’t want execution because the security didn’t trade at or thru the price you were looking for $10.00.

    For better or worse your order is filled by a price discovery mechanism that allows most participants no control over execution, NONE.

    Would you go into Walmart and buy an appliance without knowing the price? Would you go into a car dealership and trade your car in without knowing the price? How about when your buying or selling a house, wouldn’t you want some control over the price?


    Try complaining to someone. Your broker will call down to the floor and get a hard copy of the bid ask prices that triggered the trade, Your broker says “everything looks ok, there’s nothing we can do”. Try complaining to the SEC, you are told by a machine not to try to contact them again.
    Complain to FINRA, don’t make me laugh (cry), I wouldn’t be suprised if they initiated the changes to order execution to begin with.

    LD, I’ll give you credit, you have touched on the issue, but you haven’t provided any ‘color’. A fair and efficient price discovery mechanism in our capital markets is vital.

    Maybe if the SEC would provide the necessary regulatory oversite and enforcement re:price discovery, the Fed wouldn’t have to resort to the massive liquidity injections via QE.

    • LD


      GREAT QUESTION!! I am going to call on the two individuals with the best read and biggest set of balls in the industry when it comes to answering questions of this sort and highlighting them for the public.

      To whom do I refer?

      Sense on Cents Hall of Fame legends, Joe Saluzzi and Sal Arnuk of Themis Trading. A link to their site is in my blogroll.

      I will be back.

  • NOD

    Did NASD find a way to become whole by given a greater pay out to these firms? Look employees of NASD fired for speaking or believing trading practices are not fair, well they become offices of large lawyer groups who appeal every case. Why can’t they work for the people, the investors, allowing FINRA to operate a bargaining board is not beneficial to its clients, the investors protection first.

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