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HomeMary Schapiro Owes America Some Answers
Posted by Larry Doyle on December 21st, 2009 8:47 AM |
Who is willing to ask the hard questions? Who is willing to call people out? Who is willing to fly in the face of the Wall Street-Washington incest? Regrettably, very few journalists and media outlets have the character and courage to truly serve the American public interest. Who is not lacking in the courage and character department? Bloomberg’s Susan Antilla.
Time and again, Antilla takes on Wall Street and the financial regulators. In my opinion, her finest piece of work comes out this morning. Susan Antilla writes, Hot Seat for SEC Chief Schapiro Won’t Cool Off:
The chairman of the Securities and Exchange Commission has a past that is fast coming back to haunt her.
Mary Schapiro’s story has none of the lurid details of philandering celebrity golfers or hedge fund titans who get sued by ex-wives for concealing marital money.
Her history and two pending lawsuits, though, raise an important question for investors: Is the woman who oversees the U.S. financial markets someone willing to fudge the facts to get things done?
If what I heard in federal Judge Jed Rakoff’s New York courtroom last week is even close to accurate, I’d say that it’s time for some serious conversations as to whether Schapiro is the person we should entrust to the top SEC job.
I totally concur. Mary Schapiro, the current SEC Chair and formerly the head of FINRA, possesses a wealth of information on a number of topics for which America would like greater detail. What are some of these topics? (more…)
Baltimore Sun, Chicago Tribune and Hartford Courant Also Questioning Mary Schapiro’s Leadership and Integrity
Posted by Larry Doyle on December 14th, 2009 1:06 PM |
Add the Baltimore Sun, Chicago Tribune and Hartford Courant to the growing list of periodicals in our country questioning the leadership and integrity of current SEC chief and former FINRA head, Mary Schapiro.
Recall that Barrons, The New York Times, and Sense on Cents have called for the public release of unredacted documents which directly address the veracity and integrity of Ms. Schapiro and her then FINRA colleagues in the merger of the NASD with NYSE Regulation to form FINRA.
Bloomberg got on board in early November, and subsequently the Washington Examiner picked up on the importance of this story in late November and published an article by Marta Mossburg, A Failure of Leadership at the SEC.
Washington Examiner: “A Fox Is Guarding the Henhouse at the SEC”
Posted by Larry Doyle on November 24th, 2009 9:26 AM |
Add the Washington Examiner to the increasing number of media outlets picking up on the stench emanating from the incestuous Wall Street-Washington relationship encompassing our nation’s financial regulatory oversight. How so? The Examiner‘s Marta Mossburg writes today, A Fox Is Guarding the Henhouse at the SEC. Who is this fox? None other than Mary Schapiro, current head of the SEC and former head of the Wall Street self-regulatory organization FINRA. Mossburg highlights:
Not everyone opposes giving government sweeping new powers like those being considered over health care and the finance industry. But everyone should care that those in power are competent, apply the law fairly and hold themselves to the highest ethical standards.
As regular readers of Sense on Cents are aware, I picked up the scent on this trail last January and have doggedly tracked it for the last ten months. I am heartened that other interested ‘hunters’ are also now putting out their ‘dogs’ in pursuit of exposing truth within our financial regulatory system so that our nation can embrace the badly needed virtues of transparency and integrity in the process.
Aside from Sense on Cents and now the Washington Examiner, who else is on this trail and tracking the scent? Barrons, Bloomberg, and The New York Times. (more…)
‘There’s Something About Mary’ as Madoff Calls Schapiro “a Dear Friend”
Posted by Larry Doyle on October 30th, 2009 7:57 PM |
Did FINRA invest its own funds from its internal investment portfolio with Bernie Madoff? Would FINRA’s head Mary Schapiro invest with her “dear friend” Bernie? Stick with me on this and let’s navigate the newest development in this ongoing scam. My concluding remarks provide insights you won’t find in many mainstream media outlets.
High five to JD for tipping me off to a segment about Bernie Madoff that just aired on CNBC. While little is truly new in this segment, Bernie’s assessment of his relationship with former FINRA head and current SEC chief Mary Schapiro is startling. While Ms. Schapiro and her colleagues at FINRA have downplayed any sort of relationship with Madoff, Bernie has a different take.
There’s something about Mary as Bernie calls her “a dear friend.”
Will the government powers have the cojones to more fully explore this relationship? Or, are they already aware of it? As I wrote in my commentary of October 22nd, “Nasdaq Sale: Why Would Schapiro and FINRA Execs Lie?”:
Did Ms. Schapiro receive the “E-Z Pass” to the SEC from FINRA with the support of the powers that be on Wall Street? Was the chair of the SEC the ultimate payoff to Ms. Schapiro for the successful completion of the merger between NASD and NYSE Regulation to form FINRA?
What does Bernie have to say? Let’s review the CNBC segment, Madoff: It’s ‘Amazing’ I Didn’t Get Caught Sooner. . .
Jailed swindler Bernie Madoff said it was “amazing” that he didn’t get caught sooner in his multi-billion-dollar Ponzi scheme, and that everything the SEC did to investigate him prior to 2006 was a waste of time, according to a jailhouse interview he gave to SEC Inspector General H. David Kotz.
Madoff also told Kotz that SEC Chairwoman Mary Schapiro was a “dear friend,” although she “probably thinks, ‘I wish I never knew this guy.'” (more…)
Mary Schapiro Has Some ‘Splainin To Do…
Posted by Larry Doyle on October 8th, 2009 4:03 PM |
Mary Schapiro
Big money makes for a very strange bedfellow. Is FINRA sleeping well these days? A pending lawsuit against FINRA would like to pull back the covers and check to see if the money in the FINRA mattress was allocated appropriately. Let’s enter the sitting room and take a peek into this corner of the FINRA household.
In the process of consolidating the NASD with NYSE Regulation to form FINRA, the NASD allocated capital proceeds to its member firms. This capital was generated via the initial public offering of the Nasdaq. Did the NASD, now known as FINRA, significantly underallocate capital proceeds to its member firms? This alleged underallocation, known as being ‘picked off’ on Wall Street, is the basis for a lawsuit brought by two FINRA member firms, Benchmark and Standard Investment Chartered.
Why am I concerned about the arcane inner workings and legal issues of a Wall Street self-regulatory organization? For the very same reason that I’m concerned about that regulator’s internal investment portfolio activities. Transparency or the lack thereof and the resulting confidence or lack thereof that the American public has in our entire financial regulatory system. Those goals strike me as worthy especially in light of the systemic risks embedded in an array of organizations which this regulator was charged to oversee. Yes, a large amount of exposure and transparency is badly needed at this point in our economic history. Against this backdrop, let’s navigate and see what we can learn about this lawsuit.
The law firms of Cuneo, Gilbert & LaDuca along with Greenfield and Goodman are representing the plaintiffs. From the former’s website we learn:
Along with our co-counsel Greenfield & Goodman, LLC, we currently represent members of the Financial Industry Regulatory Authority (“FINRA”) (formerly known as the National Association of Securities Dealers or “NASD”) in United States District Court and Court of Appeals litigation. The complaints, which are based on state law, allege that defendants, among other things, obtained the NASD members’ vote in support of the consolidation of NASD and NYSE Regulation through an inaccurate and deceptive proxy statement and solicitation process. (LD’s highlight) At issue in the suit is whether NASD could have distributed to its members a larger share of the approximately $1.5 billion of NASD members’ equity. As members will recall, NASD repeatedly asserted that the IRS imposed a $35,000 “hard cap” on what the NASD could pay its members.
Wow. With a $1.5 billion pie, we are talking big money. In light of that, a charge labeled as ‘inaccurate and deceptive proxy statement and solicitation process’ is aggressive especially for an industry’s regulatory organization. Whatever happened to embracing accuracy and clarity? Let’s continue.
Some documents from the litigation that shed light on the truth of these statements are now public. However, FINRA has insisted that the key fact – the amount the Internal Revenue Service (“IRS”) told NASD it could distribute – remain secret, that is, under seal.
Secret? Under seal? Those terms aren’t synonymous with transparent. I thought under the ‘change’ being promoted by the Obama administration transparency would be embraced. What this looks like is more ‘business as usual’ on Wall Street. Navigating further we learn,
>The IRS did not limit the payment to member firms to $35,000 as NASD and its officials insisted.
>The IRS did not issue a formal ruling on the payment to members until March 13, 2007 – approximately two months after the member vote on the bylaws occurred.November 21, 2006.
>NASD Board Minutes demonstrate that the NASD Board discussed the $35,000 limit stating, “regardless of the amount agreed upon, it was paramount that the figure not be subject to negotiation.”
At this juncture, if I could be so bold as to steal a line from Ricky Ricardo in engaging Lucy, I would say to Mary Schapiro who headed FINRA, “you got some ‘splainin to do.”
For any legal beagles and overachievers in the audience, I am happy to submit the following legal documents pertaining to this case:
Communications between NASD and the IRS
Communications Between NASD and NYSE
Rest assured, I will be monitoring developments in this case closely.
LD
How Courageous Is Mary Schapiro?
Posted by Larry Doyle on June 4th, 2009 11:57 AM |
Does SEC chair Mary Schapiro have the personal courage to lead a new and emboldened financial regulatory regime?
Ms. Schapiro has always been viewed as being far too cozy with the financial industry. Sense on Cents first crossed paths with current SEC chair Mary Schapiro this past January at the time of her exceptionally easy confirmation hearing. At that point and since, the Wall Street Journal, Bloomberg and others have weighed in that Ms. Schapiro is “no regulatory heavyweight.”
Let’s check back and see if Ms. Schapiro is breaking off the Wall Street shackles. The Washington Post does us the favor of reporting this morning, SEC Chief Strives to Rebuild Regulator:
Schapiro is working to step up enforcement efforts, pushing cases linked to the financial crisis and freeing investigators to more vigorously pursue financial wrongdoing. She is also pursuing regulations to govern hedge funds, derivatives, short-selling, money managers, corporate disclosures and governance.
I am heartened by Ms. Schapiro’s aggressive posture. That said, I am not about to accept purely on face value that Ms. Schapiro is “changing her game.”
On the heels of the financial fiasco on Wall Street, there is doubtless lots to clean up. However, Ms. Schapiro has to appreciate that many question her courage in taking on this task. Why? Very simply, her track record as head of Finra saw an unprecedented drop in sanctions and fines. As the WSJ highlighted this past January:
Fines collected and sanctions assessed by Finra under Ms. Schapiro’s leadership dropped by 73% (in 2005, prior to Ms. Schapiro assuming leadership, Finra collected $150 million in fines. In 2006, Schapiro assumed the leadership reins and that number moved to $75mm. It dropped further to $50mm in 2007, and $35-40mm in 2008).
Against that backdrop, Ms. Schapiro has a lot of work to do to change her own image along with that of the SEC. The WaPo reports that Schapiro is aware of this fact. Schapiro states as much:
“I wanted to be very clear almost from my first day — not just with words, which are pretty easy to string together, but with actions — that this is a new SEC that is moving in a decidedly different direction and at a decidedly different pace,”
Additionally, Schapiro comments,
“Our markets are vulnerable if we’re not able to restore confidence,” Schapiro said. What investors “need to see is that the rules that are in place and will be in the future are enforced and aggressively enforced. If they don’t see that, their reluctance to engage the capital markets will be pretty significant.”
The media continues to rail on Schapiro, the SEC, and Finra for having missed the Madoff scam. Those protests are totally justified. It has been almost 7 months since Bernie turned himself in to authorities and little progress is provided to the public on the investigation.
In my opinion, though, Ms. Schapiro has other dirty laundry that needs a full and public airing.
The U.S. attorney in Brooklyn along with the SEC are currently investigating former executives from Lehman for potentially front running the Auction Rate Securities market in 2007. I call upon Ms. Schapiro to release information regarding Finra’s liquidation of its own Auction Rate Securities holdings in the same time period. Full details on this story are included in U.S. Attorney and SEC Investigate Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s.
Ms. Schapiro may have to recuse herself in the process of a full and thorough investigation of Finra and its ARS sale. As with any real leader, if she has absolutely nothing to hide, then she should have no problem recusing herself. As she herself said, “our markets are vulnerable if we’re not able to restore confidence.”
Does Ms. Schapiro have the courage to investigate Finra and her own tenure in an attempt to restore that confidence?
LD
All The King’s Horses and All The King’s Men . . .
Posted by Larry Doyle on May 6th, 2009 11:37 AM |
Can Barack Obama’s horses and men in the persons of Ben Bernanke, Tim Geithner, Larry Summers, Paul Volcker, Rham Emanuel, Sheila Bair, and their minions put Wall Street together again? The glue and putty in the form of trillions of dollars of taxpayer funds and commitments is still wet. Mr. “Humpty Dumpty” Wall Street is still on the ground.
Humpty’s most severe injury is the breakdown of the securitization process in which Wall Street promoted a pure “originate to distribute” model. Obama himself offered in the May 3rd Sunday New York Times Magazine:
. . . we’re going to have to figure out what we do with the nonbanking sector that was providing almost half of our credit out there. And we’re going to have to determine whether or not as a consequence of some of the steps that the Fed has been taking, the Treasury has been taking, that we see the market for securitized products restored.
I’m optimistic that ultimately we’re going to be able to get that part of the financial sector going again, but it could take some time to regain confidence and trust.
Time for the cement to harden and for Humpty to get back on his feet. Why will it take so much time? Very simply, Humpty was not an honest broker in the process of originating, securitizing, and distributing poorly written – if not fraudulently written – loans over the last 5 to 7 years. The Financial Times highlights this fact this morning in “Securitization Is Crucial for Revitalizing Lending.” The FT reports:
Securitisation is a way to raise money by repackaging securities based upon underlying assets such as mortgages.
The US government is seeking to restart this market with up to $1,000bn of funding for purchases of securitised debt. But the complexity and risks involved mean it remains difficult to replicate the scale of the market that collapsed under the weight of losses and the departure of leveraged investors.
Meredith Whitney, of Meredith Whitney Advisory Group, says about $2,200bn less in funds has been raised by means of the US capital markets since the start of the credit crunch in July 2007, with $2,700bn less money raised globally.
She said: “With debt issuance to date seeing year-on-year gains, it is suggestive to say that things aren’t getting much worse. They just aren’t getting any better.”
The US government’s programme to revive securitisation – the Term asset-backed securities loan facility (Talf) – has made some funds available and it has also led spreads on some asset classes to narrow, reducing the potential funding costs. The programme works by lending money to hedge funds, which can increase the returns on triple A rated securities by means of the cheap loans.
In a sign of a big pick-up in demand, the Federal Reserve said late yesterday that investors requested $10.6bn worth of loans in its most recent round of the programme. This included $2.2bn worth of requests for auto loan bonds and $5.5bn for bonds backed by credit card loans.
If we review those statistics, the government’s TALF (Term Asset-Backed Lending Facility) has facilitated $18.5 billion in sales since its launch in March. While the Fed views the demand as picking up, be mindful that the $18.5 billion figure represents approximately .008 of the total credit that has evaporated from the economy via the shadow banking system. In layman’s terms, we just gave Humpty a swab with a warm cloth while his limb is holding on by a thread.
My concern with the TALF is that the buyers will cherry pick bank assets and simply purchase those which have the most rigorous underwriting. The dregs will be left for the banks and taxpayers to absorb.
If Uncle Sam does get Humpty somewhat propped back up against the wall (note that I’m not even hinting at Humpty getting “on the wall”), how do we make sure Humpty does not once again fall down and take us all with him?
We need to make sure Humpty plays by strict rules and regulations, both in terms of underwriting and business engagement. The FT addresses proposed underwriting rules in “Watchdog Proposes Strict Rules.” The FT reports,
Yesterday’s Iosco (International Organization of Securities Commissions) report called for minimum levels of due diligence by the originators and suggested mandating far greater disclosure to investors of what checks had been carried out. It also called for ongoing disclosure to investors of the performance of the underlying assets and for originators to be forced to hold on to some tranches of each deal.
Other proposals included imposing standards forcing originators to check that products were suitable for each investor and looking into developing alternative measures of assessing risk other than the credit ratings agencies that were relied on by investors previously.
Wow, you mean Humpty actually has to display a measure of integrity in his operations? What a novel idea! Who may be keeping an eye on Humpty to make sure he plays by the rules going forward? The SEC and FINRA (Financial Industry Regulatory Authority).
Hey, wait a second. When Humpty fell off the wall, we have very credible evidence that FINRA was actually one of his playmates. None other than Harry Markopolos said that FINRA was on the wall (“in bed”) with Humpty. I have highlighted issues within FINRA that still need to be addressed: FINRA Is Supposed To Police The Market.
President Obama, what do you prescribe for Humpty given his relationship with FINRA? Obama told the Times,
. . . the fact that we had such poor regulation means — in some of these markets, particularly around the securitized mortgages — means that the pain has been democratized as well. And that’s a problem. But I think that overall there are ways in which people have been able to participate in our stock markets and our financial markets that are potentially healthy. Again, what you have to have, though, is an updating of the regulatory regimes comparable to what we did in the 1930s, when there were rules that were put in place that gave investors a little more assurance that they knew what they were buying.
Putting Humpty back together is going to be very challenging. Sense on Cents will be monitoring the operation very closely.
LD
For newer readers who may want to more fully understand how Humpty “had a great fall,” I strongly recommend The Wall Street Model Is Broken….and Won’t Soon Be Fixed.
Mary Schapiro Comments on Examining Books and Records
Posted by Larry Doyle on August 29th, 2009 6:51 AM |
If hedge funds and other financial firms are to be regulated for purposes of reviewing business practices, doesn’t it go without question that a financial self-regulatory organization which has invested in hedge funds should also be required to open its books and records?
In a recent interview, SEC chair Mary Schapiro was asked about the regulation of hedge funds. Wall Street Pit captured the entire interview, SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done. This interview is very comprehensive and covers market structures, high frequency trading, derivatives, the Federal Reserve, systemic risk, the future of the SEC, and more.
The segment that jumped out at me was the following:
My point of this commentary is not hedge funds specifically but that Ms. Schapiro raises the topic of examining books and records and understanding how an entity conducts business.
Just as Ms. Schapiro feels hedge funds should be regulated for these purposes, who in their right mind would not want the same exposure and transparency required of the Wall Street self-regulatory organization, FINRA? That exposure and transparency is the basis for the complaint filed by Amerivet Securities vs. FINRA (Amerivet Complaint Against FINRA Alleges Madoff Investment).
Ms. Schapiro may have to recuse herself from any review of FINRA given her position as head of FINRA prior to heading the SEC.
In fact, given the questionable nature of FINRA’s activities (investment, regulatory oversight, compensation practices), the review of FINRA should be undertaken by an independent investigator.
Although FINRA itself does not want to provide transparency into its activities, transparency for a financial regulatory organization must happen without question.
LD
Tags: Amerivet complaint vs. FINRA, FINRA must open its books and records, hedge fund regulation vs FINRA, Mary Schapiro, Mary Schapiro comments on need to open books and records of hedge funds, Mary Schapiro comments on need to regulate hedge funds, Schapiro interview with Liz Claman, SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done
Posted in FINRA, General, Hedge Funds, Mary Schapiro | 2 Comments »