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HomeFINRA and ARS: Pot Calling Kettle Black
Posted by Larry Doyle on January 25th, 2010 2:34 PM |
Thanks to a loyal Sense on Cents supporter for sharing the most recent copy of Compliance Reporter, a publication of Institutional Investor, Inc.. The lead article this week, FINRA Readies Slug of Enforcement Cases, addresses the fact that FINRA:
is targeting a slew of enforcement actions across a range of areas, including reverse convertibles and auction-rate securities.
Oh boy, here we go again. FINRA talking tough about auction-rate securities. Additionally, FINRA further flexes its muscle by:
warning firms that strained layoffs and resources are no excuse to delay responses to FINRA’s request for document production requests.
This self-regulatory organization has truly got some set of balls talking about delayed responses to requests for documents and information. (more…)
Raymond James Apology for Auction-Rate Securities
Posted by Larry Doyle on January 7th, 2010 1:25 PM |
A friend of Sense on Cents informed me the other day that Tom James, chairman and chief executive of Raymond James, issued an apology to the firm’s clients involved in the auction-rate securities fiasco. Wow! Given my keen interest in this topic and my empathy for the investors who have been abused by the industry, my heart raced. An apology by the head of a firm the size and scope of Raymond James is deeply meaningful.
Upon review of the article, Tom James Apologizes for Auction Rate Securities Purchases, published in the Tampa Bay Business Journal, I witnessed that it was written January 5th. Breaking news! Then I realized it was written January 5th but 2009!
Regardless of the fact that the article was published a year ago, I continued reading intrigued to learn more about this situation as it stood a year ago. The Tampa Bay Business Journal reported Tom James saying: (more…)
Auction Rate Security Anxiety Continues
Posted by Larry Doyle on December 29th, 2009 10:03 AM |
Still they wait.
$150 billion dollars.
Thousands of investors unable to access THEIR funds frozen in Wall Street’s greatest fraud, that is the world of auction-rate securities.
While an initial court ruling against Union Bank of Switzerland defined the sales and distribution of auction-rate securities as a fraud, recent court rulings have shifted the burden of responsibility onto investors.
When I worked on Wall Street, I was never involved directly or indirectly with the sales or trading of auction-rate securities. That said, I understand full well the explicit and implicit guarantees that brokers and salespeople made in distributing this product. The fact that those entities which distributed ARS have not been held to full and total account is an unspeakable travesty. The lives of investors who have been dramatically impacted get little to no attention from the media. Shame on them.
Our federal financial regulators housed within the SEC are nowhere to be found. FINRA remains in bed with the industry and would just as soon not draw attention to its own liquidation of $647 million ARS in mid-2007 as the market was failing.
Days, weeks, months, and now years pass. Where is the justice and retribution for those ARS investors still frozen and unable to access that $150 BILLION!!! (more…)
Will Ignorance Defense Continue to Screw Auction-Rate Securities Investors?
Posted by Larry Doyle on December 18th, 2009 8:03 AM |
Auction-rate securities investors remain at a decided disadvantage when it comes to pursuing legal claims. Misrepresentation by those distributing the auction-rate securities does not seem sufficient to warrant a claim, let alone retribution. The fact that investors are having difficulties bringing suit against Wall Street firms which distributed auction-rate securities should be further reason for investors to be cautious in engaging brokers and financial planners. Why? The fact that selected cases of auction-rate securities distribution have been designated as having occurred in a fraudulent fashion would seem to have established a significant precedent. The fact that the precedent has not been established is mind boggling.
$149 BILLION in auction-rate securities held by thousands of investors remain frozen. Where’s the justice?
Bloomberg provides a recent review of these developments in writing, Auction-Rate Investors Get Redo After Loss of First Fraud Suits:
Auction-rate securities investors who sued banks including Citigroup Inc. and UBS AG to recoup billions of dollars in losses went 0 for 5 as their first cases were thrown out. Now some are gearing up for a rematch over part of the $149 billion in securities that remain outstanding. (more…)
Ignorance Defense Works on Wall Street
Posted by Larry Doyle on November 10th, 2009 8:47 AM |
Ignorance of the law is never an acceptable defense on Main Street; regrettably, the same does not seem to hold true on Wall Street. How so?
A recent auction-rate securities arbitration case involving an investor who purchased ARS from a Raymond James financial representative acknowledges the ignorance of the sales rep, but effectively absolves the firm in the process. The implications of this decision should not be underestimated. The Wall Street Journal sheds further light on this case in a recent review, GETTING PERSONAL: Investor Loses Out In Auction-Rate Case:
A complaint brought by an auction-rate securities investor offers insight into the plight of those stranded in the instruments as well as the arbitration process some investors dread.
Like many investors, Gene McCutchin, a real-estate entrepreneur, was holding auction-rate securities when the $330 billion market froze up in early 2008. He filed a complaint against his broker, Raymond James Financial Services Inc., in September 2008 asserting negligence, fraud and breach of fiduciary duty, among other things. He said the brokerage failed to warn him about the risks before his purchase, and he asked for compensation and punitive damages.
A Financial Industry Regulatory Authority arbitration panel, in an Oct. 26 resolution, didn’t award damages or order that the share sale be rescinded. It supported some of McCutchin’s assertions, finding that a Raymond James broker, Rick Woolfolk, “was poorly trained with respect to the ARS product,” and it did order the brokerage to pay forum costs.
But the panel also said that McCutchin identified himself as “a sophisticated investor.” While McCutchin wasn’t informed about the extent of risk before the transaction, it was clear that his personal adviser, Dan Chilton, understood that he was buying ARS bonds, and that the higher returns they offered came with higher risk, the panel’s resolution said.
Let’s zero in on the phrase, “wasn’t informed about the extent of the risk before the transaction.” The fact that the FINRA arbitration panel is absolving Raymond James in this transaction, despite the fact that the customer was not informed of all the risks, should send chills down the spine of every investor in our public markets. With that statement, the arbitration panel is sending a message, loud and clear: “Buyer Beware!!” You are on your own.
To mitigate the enormous risk of purchasing an investment that a sales representative may not understand, I would strongly encourage individual investors to do the following: (more…)
Pinnacle Receives Auction-Rate Securities Settlement; What about Every Other ARS Investor?
Posted by Larry Doyle on August 31st, 2009 12:34 PM |
How can auction-rate securities investors receive liquidity from the remaining $165 BILLION in frozen ARS securities?
Let’s review a recently announced settlement that Pinnacle Airlines negotiated with Citigroup. Bloomberg reported this morning, Pinnacle Airlines Flight From Auction Rate Costs $16 Million. Pinnacle is under severe cash constraints with a $109 million note maturing in early 2010. Bloomberg provides details how Pinnacle received liquidity along with a call option to repurchase the ARS from Citigroup at the same price it is selling the ARS. What does it all mean? Bloomberg highlights:
Pinnacle received $112 million from Citigroup Global Markets Inc. for its $128 million auction-rate portfolio, according to Williams. The $16 million loss amounted to a 12.5 percent discount. The deal allows Pinnacle to buy the securities back at the same discount anytime during the next three years, Williams said.
“We are pleased to have been able to provide a liquidity solution to our client,” said an e-mailed statement from Danielle Romero-Apsilos, a spokeswoman for Citigroup, which sold Pinnacle the auction-rate securities.
Sense on Cents asks the following questions:
1. Would Citigroup offer this settlement to every other investor to which it sold ARS?
2. What do ARS investors who are regular readers of Sense on Cents think of this settlement?
3. Does this settlement preclude investors from participating in a larger settlement that may include penalties?
4. Why shouldn’t other banks, brokers, and money managers who sold and marketed ARS in a fraudulent fashion be mandated by the courts to provide a temporary liquidity facility similar to this? If these entities, which engaged in the fraud, maintain they can not ‘afford’ this settlement, isn’t that a de facto admission of guilt and an ongoing perpetuation of the fraud?
When will ALL investors in auction-rate securities receive an expedited settlement which leads to full and total restitution? The feet dragging on behalf of issuers, banks, regulators, and the courts is a gross injustice of massive proportions.
Perhaps the claim embedded in the Amerivet Securities complaint against FINRA can help to unlock the ARS mess and expose the incestuous relationship between the financial self-regulator and Wall Street. At that point, perhaps ARS investors may move closer to receiving their funds and some justice from this fraud.
LD
Wall Street ARS Betrayal Brings Losses and Sleepless Nights
Posted by Larry Doyle on August 28th, 2009 9:19 AM |
Those who would betray the trust and integrity of a market and investment must be held to account.
Such is the current dynamic within Wall Street’s greatest fraud that encompasses Auction-Rate Securities.
At times, I wonder if I focus too much on the ARS debacle. Then, when I read of the depths of despair experienced by ARS investors, both institutions and individuals, I personally seethe at the injustice of it all.
Bloomberg provides a wide ranging review of institutional investors who were defrauded by Wall Street in purchasing auction-rate securities. Bloomberg writes Wall Street Betrayal Seen in $4.8 Billion Company Debt Losses. The highlights in this article are almost too numerous to single out, but suffice it to say this fraud has likely touched almost every investor in either a direct or indirect fashion.
I am heartened that the fraud is finally receiving significant focus. That said, how will Wall Street be held accountable and how will investors be made whole? Let’s address some specific details as highlighted by Bloomberg:
Bristol-Myers Squibb Co. the New York-based pharmaceutical company, took an 82 percent loss in 2008 when it sold a portion of its auction-rate debt with a $642 million face value.
The maker of Plavix, the world’s second best-selling medicine behind Pfizer Inc.’s Lipitor, continues to hold $169 million worth of auction-rate bonds. It wrote them down by $75 million in the second quarter, according to regulatory filings.
An 82% loss on a supposed cash surrogate! A 44% writedown on cash! (more…)
“Retired Securities Attorney Sues Nuveen Over Auction-Rate Shares”
Posted by Larry Doyle on August 27th, 2009 5:03 AM |
Wall Street can keep its arbitration hearings, it is time to sue banks and brokers over the frauds perpetrated in the sales and marketing of auction-rate securities. A securities arbitrator by the name of Howard Kastel is taking that very approach.
Every individual who opens a brokerage account typically signs a statement indicating that disputes will be addressed through an arbitration process. I find it fascinating that Kastel, a retired securities attorney who served as an arbitrator, has chosen to sue rather than arbitrate over his purchase of ARS.
You can’t make this stuff up!!
The Wall Street Journal highlights this case in reporting, Retired Securities Atty Sues Nuveen Over Auction-Rate Shares:
A retired securities attorney is suing Nuveen Investments and others in federal court over a $2 million investment in now-frozen auction-rate securities, contending that his case is too complex for arbitration.
Howard Kastel, 77, and his wife, Joan, filed suit Friday in the U.S. District Court for the Middle District of North Carolina against Deutsche Bank AG (DB), Nuveen Investments Inc. (JNC), Merrill Lynch & Co. and others. It alleges the couple were victims of a “fraudulent scheme” in which markets for the securities were manipulated.
I would maintain that Mr. and Mrs. Kastel should not be subjected to arbitration nor should any investor in auction-rate securities. I have yet to come across an ARS investor who was not a victim of the fraudulent scheme in which ARS were marketed and sold. The WSJ continues:
Investor complaints are generally handled in arbitration, but Kastel, who has been an arbitrator for years and still does some arbitration work, said that as a complex fraud case his complaint is inappropriate for arbitration. As a former securities attorney, Kastel said, he would also be an inappropriate plaintiff in a class-action lawsuit.
Arbitration is CLEARLY NOT the forum for any ARS investor. Who hosts arbitration hearings? FINRA. Yes, the same FINRA which owned and liquidated upwards of $647 million ARS from its own investment portfolio in 2007. Can you say, ‘conflict of interest?’ Do you think FINRA front-ran the market in the process of liquidating its ARS position? (more…)
BREAKING NEWS: Amerivet Complaint Against FINRA Alleges Madoff Investment
Posted by Larry Doyle on August 25th, 2009 10:47 AM |
Two weeks ago, Amerivet Securities filed a complaint against FINRA (Financial Industry Regulatory Authority), the Wall Street self-regulatory organization. This morning, Donna Mitchell of Financial Planning provides further insight on this complaint. Ms. Mitchell writes FINRA Rebuffs Amerivet’s Demand to Inspect Records. She reports:
The Financial Industry Regulatory Authority (FINRA) says it will not open its books and records to inspection by Amerivet Securities, the California brokerage firm which recently sued the regulator.
“We disclose a great deal of public information in our annual reports, far more than we are required to do,” says Herb Perone, a spokesman for FINRA. “Our records are not open for public examination.”
Sense on Cents questions why any financial self-regulatory organization mandated to protect investors would not be required to fully open all of its books and records for public review. Additionally, having extensively studied all of FINRA’s annual reports as well as those of its predecessor, the NASD, I echo the questions being raised by Amerivet. Does FINRA have any appreciation for the need for total truth and transparency in our markets and economy? The questions beg: why won’t FINRA fully open its books? are they trying to hide something? do they have reason to be concerned?
OPEN THE BOOKS!!!
Financial Planning continues:
The request for records is part of a civil suit filed Aug. 10 in the Superior Court of Washington, D.C., by Inglewood, Calif.-based Amerivet Securities. It stems from a July 23 letter sent to FINRA from Amerivet, in which the company initially asked to review FINRA’s documents.
In the lawsuit, Amerivet accuses FINRA of a litany of wrongdoings, from mismanaging the organization’s investment assets to placing substantial funds with Bernard L. Madoff Investment Securities, the former broker-dealer and investment advisory firm that was brought down amid a $65 billion Ponzi scheme.
WOW! The allegation of an investment by FINRA in Madoff is a BLOCKBUSTER. What information did Amerivet and its legal representation unearth to make this allegation? This information must be revealed and FINRA must open its books and records to address this charge. (Click on image to access copy of Amerivet complaint)
Financial Planning further reports:
Amerivet also alleges that FINRA failed to regulate and oversee the operations of large securities firms such as the former Bear Stearns & Co., the former Lehman Brothers, Merrill Lynch & Co., and Stanford Financial Group.
Amerivet also claims that FINRA overpaid its executives, sustained investment-related losses of $568 million and separately incurred substantial losses in the auction-rate securities market. “FINRA has failed in what it represents in its advertising to be its core function, i.e. the protection of investors,” Amerivet says in the lawsuit.
Is there any doubt that FINRA has failed to protect investors? Is there any doubt that senior executives at FINRA were paid handsomely?
In regard to the auction-rate securities allegation, is Amerivet maintaining that FINRA lost money on the ARS which it owned or is Amerivet referring to money lost by investors? Details of FINRA’s liquidation of ARS in 2007 must be released. Did FINRA front-run the market in the course of selling its own ARS?
OPEN THE BOOKS!!
Financial Planning gains a degree of insight from FINRA and reports:
FINRA would not comment about the lawsuit directly, but Perone said the organization had steered clear of investing with Madoff.
“As for any claim or question as to whether we had money invested with Madoff, we had no investments of any kind in Madoff or in any of its feeder funds,” Perone said.
The allegations and implications of the Amerivet complaint strike right at the core of our financial regulatory framework. Any credible media outlet should be running the Amerivet complaint as a lead story.
The American public deserves answers.
OPEN THE BOOKS!!
LD
Related Sense on Cents Commentary:
Amerivet Securities Files Complaint vs. FINRA for Release of Investment Information and More (August 17, 2009)
FINRA Must Play by Its Own Rules (August 19, 2009)
*****************************
UPDATE as of 11:20AM – Financial Planning has removed from its website the article referenced in this post. I am in the process of receiving the actual Amerivet complaint and will review it and comment later this afternoon.
UPDATE as of 12:05PM – I just received a copy of the Amerivet Securities vs. FINRA complaint. See pages 8-9, points #24-28 for details regarding the allegation that FINRA was invested with Bernie Madoff.
Attorney Representing Amerivet Securities Makes Claim FINRA Insider Confirms Investment in Madoff
Posted by Larry Doyle on September 4th, 2009 1:20 PM |
Did we just find the smoking gun which indicates that FINRA (Financial Industry Regulatory Authority) actually invested in the Madoff Ponzi scheme?
I was on a panel last evening on America’s Nightly Scoreboard on Fox Business News (the entire transcript can be found at this link). The topic was one which regular readers of Sense on Cents are most familiar, that being FINRA.
The show is hosted by David Asman. Panelists included Richard Greenfield, an attorney representing Amerivet Securities in its suit against FINRA; former SEC chair Harvey Pitt; Madoff Victims Coalition head Ronnie Sue Ambrosino and her husband Dominic; and yours truly.
I commend the host of the show, David Asman, for being thorough, professional, balanced, and aggressive in addressing the topic. We covered a number of angles including:
1. Amerivet Securities complaint vs. FINRA
2. Mary Schapiro’s tenure and compensation at FINRA
3. FINRA’s investment portfolio, including its sale of auction-rate securities.
4. Did FINRA invest in Bernard Madoff’s Ponzi scheme?
There were a few bombshells that came out of our discussion, including a claim by Mr. Greenfield, the Amerivet Securities attorney, that “somebody well-placed within the organization (FINRA) that told us, in no uncertain terms, there was an investment with Madoff.”
Additionally, former SEC chairman Harvey Pitt provided a qualified endorsement of FINRA opening its books and records in an acknowledgement of the need for greater transparency.
I am happy to provide the transcript of the dialogue which encompassed these two momentous statements:
Further along in the dialogue, we engage in the need for FINRA to open its books and records:
I am thrilled that these issues which Sense on Cents has been focused on for the last 8 months are coming into the public light. That said, there remains plenty of work left to do to generate the truth, transparency, and integrity that our markets, economy, and country so badly need.
You can help by spreading this story amongst friends and colleagues. While the Amerivet complaint vs. FINRA will be addressed in the Washington D.C. courts, the fact is the issues revolving around FINRA and regulatory transparency need to be highlighted in the court of public opinion.
What do you think?
LD
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Related Sense on Cents Commentary
Madoff Victims Call Out FINRA (September 3, 2009)
Amerivet Complaint Against FINRA Alleges Madoff Investment (August 25, 2009)
How Courageous is Mary Schapiro? (June 4, 2009)
U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s (May 21, 2009)
FINRA Is Supposed to Police the Market (April 29, 2009)
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