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FINRA “Meter Maids” Top 25 Fines: “Ain’t No Party”

Posted by Larry Doyle on August 2, 2012 9:09 AM |

Wall Street’s self-regulator FINRA just celebrated its 5 year anniversary. Congratulations to them. Sympathies and condolences to the rest of us.

The Securities Technology Monitor highlights FINRA’s birthday with a grandiose slideshow presentation entitled, The First Five Years; FINRA’s Top 25 Enforcement Cases. While those at FINRA might be celebrating the anniversary with cookies, cupcakes, and lemonade, let’s take a more critical review of Wall Street’s industry-funded private police detail. 

In the five years since, the independent regulator of brokers has brought 6,291 disciplinary actions and levied fines totaling $254.1 million.

6,291 disciplinary actions brought over 5 years equates to 1,258 cases per year. With approximately 250 business days per year, FINRA has brought 5 cases for every business day during its existence. Strikes me as a busy organization.

$254.1 million in fines levied over the course of 5 years equates to $50.8 million per year. What do we think of that? $50 million in fines levied per year for Wall Street’s private police. Not exactly a significant number. In fact, for an industry the size and scope of Wall Street, $50 million in fines levied on an annual basis is little more than a rounding error. Could very well be the boys and girls on Wall Street make that as a donation in the ‘tip jar’ at the industry sponsored summer barbecue.

Not all fines levied are equal, though, so let’s take a harder look at FINRA’s biggest “tickets”.

1. UBS SECURITIES LLC – $12,000,000

The firm mismarked millions of sale orders in its trading systems at various times. Extrapolating from the quantified violations indicated that the firm likely mismarked tens of millions of sale orders during the Relevant Period. Many of these mismarked orders were short sales that were mismarked as “long,” resulting in additional significant violations of Reg SHO’s locate requirement.

This violation zeroes right in on the multi-billion dollar incredibly destructive practice known as naked short selling. FINRA’s #1 fine relative to revenues generated via this practice is little more than a small digit after many zeroes to the right of a decimal point. Not good. Additionally, UBS was not the only bank involved in the naked short selling practice.

2. GOLDMAN, SACHS & CO. – $11,000,000
The firm did not have adequate policies and procedures governing Trading Huddles between its analysts and clients, “despite the substantial risk that the Trading Huddle process could lead to the dissemination of material non-public information concerning the analysts’ published research to the firm’s clients.”

What is going on here? Goldman’s trading huddles were a core part of the firm’s business model to favor selected clients. In reality, the trading huddles were a vehicle for the promotion of front running and perhaps insider trading. $11 million fine? I would be willing to bet that Goldman made more than that on many individual transactions resulting from this practice.


“In prospectus supplements for six subprime securitizations worth approximately $2.2 billion that DBSI underwrote and sold in 2006, DBSI negligently underreported the delinquency rates, or the percentage of underlying loans that were delinquent at the time of the creation of the trust, for the loan pools which served as collateral for these securities. As a result, DBSI violated NASD Rule 2110.

DBSI also negligently underreported the historical delinquency data, or static pool information, in connection with 16 subprime RMBS securitizations that it underwrote and sold in 2007.”

A violation of NASD Rule 2110? This practice by Deutsche Bank strikes me as a clear violation of Rule 10b-5. At that point in time, Deutsche Bank was likely generating approximately 1 point on these transactions. That margin would equate to $22 million in revenue on these transactions alone. Thus, this fine equates to approximately a third of DBSI’s profit margin. WHAT a JOKE!! But this is FINRA’s 3rd largest fine levied.

Are you starting to appreciate why I have railed so hard on this organization over the last three plus years? Let’s continue as a real favorite of mine is next on the docket.

“Beginning in late summer 2007, SunTrust RH became aware of stresses in the auction-rate securities market that raised the risk that auctions might fail. As these stresses increased in the late Fall 2007 to early 2008, the Firm made misrepresentations and omissions of material facts relating to the safety and liquidity of ARS by inadequately disclosing to its sales representatives SunTrust RH’s increased concerns about its ability to support SunTrust RH-led ARS issues, or whether SunTrust RH could or would continue to support these SunTrust RH-led ARS issues, as it had in the past. As a result, certain sales representatives continued to sell these ARS as safe and liquid.”

If SunTrust RH became aware in late summer 2007 of stresses in the auction-rate securities market that raised the risk that auctions might fail and that these stresses increased in the late Fall 2007 to early 2008, are we supposed to believe that FINRA itself was not aware of the same stresses? STOP IT!!

Yet what did FINRA do during this time period?

We know that FINRA owned and liquidated ~$647 million in auction-rate securities from its own internally managed investment portfolio during that same mid-2007 time frame. Regular readers are well aware of how long and hard I have banged that drum. I highlighted FINRA’s liquidation in writing, “FINRA Is Supposed to Police the Market.” I believed then and more strongly believe now that the industry funded cops at FINRA themselves engaged in front running/insider trading within the ARS market.

Have you seen enough? I have.

FINRA likes to promote itself as Wall Street’s cops. If investors were to accept that description and believe they are truly protected, then they would also have to accept that the meter maids writing tickets along your local streets will be an appropriate line of defense against real criminal activity.

Do not take my word for that aggressive evaluation. Just look at FINRA’s record for the last 5 years.

If this situation were not so pathetic and destructive, it might be comical . . . BUT it is not.

Industry funded, self-regulation of Wall Street is filled with such massive conflicts of interest as to make the entire system little more than a charade. On that note . . . be very careful and navigate accordingly.

Related Sense on Cents Commentary
Sense on Cents/FINRA

Larry Doyle

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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 so that investor confidence and investor protection can be achieved.


  • phil trupp

    An insightful look at the hear-no-evil, see-no-evil ethics of FINRA. Of course applying an ethical code to anything related to Wall Street requires intercession of a saint yet to be named, let alone discovered. There are so few voices of reason and honesty in this murky realm. I remain constant in my admiration for Larry Doyle, a searching intellect who has never backed away from a good fight.

  • KC

    Hello Larry,

    Appreciate your insight. Its so true. As I awaited the July 21st 2012 day scheduled by Dodd Frank for the SEC to address Naked short selling rules and regulation I find not much has changed.

    The Wall Street Conspiracy continues to spread its message.

  • Guido Volante

    It seems that The SEC got out of the heat in the kitchen and let FINRA carry the ball of deception and collaboration with sissy slaps,cone vision and selective prosecution.
    Maybe when the ridicule and condemnation of FINRA reaches the critical mass the SEC experienced they’ll toss the ball back to the SEC.
    Why do I want to defend the Second Amendment when I read these things?
    Anyhow, this is an excellent adjunct to my book, Treason Among Us: Secrets of the S.E.C.
    Short of a gallows party for suspected enablers of financial criminality the battle will go on as long as we have eyes to see, ears to hear and voices to speak out with.

    • john halsey

      I look forward to your book Guido. You have lots to write about. I am half way thru with Neil Barofsky’s BAILOUT.

  • Bill

    The houses just treat these fines as a cost of doing business. Like mob payoffs to cops.

  • Beetle Bailey

    Re-sleeve the rabid bastards at the DEA into the new FINRA….have them go after these criminals wiith the same zeal.

    Offer a 10% finders fee for any violators to the agents. Polygraph tests MANDATORY……….no damned exceptions.

    Monthly Congressional oversight committee broadcast on C-SPAN.

    Excellent start.

  • Papa

    These fines are useless until they extract 10-100X the capital from the “family tree” as clawbacks from CEO’s, management and crooks.

    Otherwise, it remains only a tax on the cost of doing business as a crook. Actually, fines are useless when there isn’t jail time associated. Jail is necessary, because time is money. Jail would help protect society from recidivism.

    Otherwise, it’s business as usual, such as MF Global bungler and bundler.

  • DTL

    The biggest lie in the history of lies has to be that Wall Street is self regulating.

    That’s no lie.

  • Joyce

    Mr. Doyle,
    Thank you for this article. As I was reading it I thought of FINRA not unlike our beloved sheriff and other local policing agencies in Palm Beach County (not to mention the State Attorney): complete bedmates with all the local power brokers.

    This, of course, makes it an honor to pay property taxes, etc., for decades.

    Thanks for letting me rant.

  • Small BD

    Based on their respective contributions, I have surmised the following categories for the above-mentioned:

    UBS- “Diamond Circle”
    Goldman “Gold Circle”
    Deutsche Bank- “Friends of FINRA”
    SunTrust- “Acquaintance”

  • JR

    Based upon evidence of a “lack of institutional control” at Penn State, the death penalty…suspending the football program…was contemplated as a penalty. Hmmm…so unlike FINRA, the NCAA has a process for establishing that an institution is “out of control”. Was HSBC out of control in its money laundering actifvities, or Countrywide in its mortgage activities?
    What does “out of control” mean for a Wall Street firm? The scale of money laundering at HSBC seems to meet that threshold. Does it mean that operations should be suspended, when criminal activity is exposed, until confidence that business practices are….in evert way…lawful
    before operations resume? Suspending operations is a lot different than a wrist slap nominal fine that truly impacts no one.

  • Rudi


    Thanks for referring me to your article. I just finished it. And all the while, FINRA, with its obligation to keep things on the up and up, may have been just as culpable or more so, than those fined. Plus, I keep asking the same question over and over, where are the investigations into the fraud that brought the house down? Where are the indictments of the individuals that were on top of packaging these bad derivatives?

    In my humble opinion (remember, I don’t have a background in finance) the industry needs to dump FINRA (not just re-organize it), dump Dodd-Frank (such a huge bill must surely have the good-old-boys covered with exceptions) and get a real simple, clean and straight forward agency that has a panel that would oversee the entire US operations and those that are carried out from the US to foreign shores. Say a panel of 25 super knowledgeable individuals, without blemish and no longer with any chummy ties to the big players, such as GS, BofA, Chase, Wells, Citigroup, etc.

    Is this independent requirement unreasonable and just a pipe dream of one who knows way too little of the workings of Wall Street?

    These panel members, should be individually and collectively responsible for carrying out their duty. If that’s too heavy for any of them, and exceptions start being considered, then don’t put this type of individual on the panel. End of the story. Heck, this isn’t a game, at stake is the strength and status of America and the future financial well-being of Americans.

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