RSS Feed
Twitter
Facebook
Email
Home“FINRA Is Supposed To Police The Market”
Posted by Larry Doyle on April 29th, 2009 6:52 AM |
I have written extensively about FINRA’s ownership of Auction Rate Securities over the last few months. This morning Bloomberg reports, FINRA Oversees Auction-Rate Arbitrations After Exiting Market.
The Bloomberg article (I am humbled by Bloomberg quoting me in the story) answers a number of questions I have raised, while also opening the door to other issues needing to be addressed:
1. Was FINRA blinded – if not totally conflicted – in addressing the trading, selling, and marketing of Auction Rate Securities? Try 862 million times.
2. Was FINRA lucky, prescient, or well informed in the timing of the sale of their own Auction Rate Securities? We may never know but given that their first “guidance for investors” was not published until after the market had totally frozen, they certainly did not provide much investor protection as is their mandate.
3. I have also written, and Bloomberg highlights, that FINRA had money invested in hedge funds. In light of market developments, I think the public has a right to know which hedge funds. Will FINRA release that information?
4. I unearthed all the information of FINRA’s investment activities from its 2007 Annual Report published in April 2008. I am still waiting for FINRA to release its 2008 Annual Report and wonder why it seems to be delayed.
5. As we move forward with likely regulatory changes for Wall Street, I believe the very nature of a self-regulatory organization funded by the banks it is charged to oversee presents massive conflicts of interest. This specific situation of FINRA’s investment in ARS is indicative of those conflicts. Will Congress have the courage to address these conflicts and serve the public interest in the process?
“To me it smacks of incompetence and negligence,” said Larry Doyle, who worked 23 years on Wall Street and runs a Web site called Sense on Cents. “Finra is supposed to police the market.”
I view FINRA as akin to the palace guard. The question remains, Does The Palace Guard Have No Clothes?
LD
Low Tide Will Reveal Rats Scurrying Amidst The Garbage
Posted by Larry Doyle on April 28th, 2009 9:09 AM |
Every exterminator will tell you that he never finds just one rat. Bernie Madoff has been exposed as an enormous rodent. Is Allen Stanford also a rat? Who else may be in the pack? Mary Schapiro, head of the SEC, revealed yesterday that the SEC is reviewing 150 other hedge funds to determine whether they also operated Ponzi schemes. Reuters reports, U.S. SEC Has About 150 Hedge Fund Probes.
Hedge funds are currently unregulated. How could the SEC have found potentially another 150 “rats” in the space of a mere three months since Ms. Schapiro has been on the job? My instincts lead me to believe the following:
1. Ms. Schapiro is trying to convey a sense of leadership and progress on fraud investigations after the abysmal performance on the Madoff scheme. The SEC needs to burnish its image and Ms. Schapiro is trying to address that with this news release.
2. I have no doubt that many other hedge funds did operate as Ponzi schemes and likely had money invested in Madoff knowing he was the largest rat. As investigators from the SEC have reviewed the list of Madoff investors, the info there has likely led to other hedge fund frauds.
Additionally, do not forget that many hedge funds suspended redemptions in the latter half of 2008. Ponzi schemes, like rats, only thrive given a steady source of food and water in the form new investments. Suspending redemptions is akin to a rat rationing its food supply. While plenty of those suspensions could be legitimate, it would be naive to think that all of them are.
3. We know that FINRA, the self-regulatory organization overseeing Wall Street, had investments in hedge funds, fund of funds, and private equity. That info was provided in the FINRA 2007 Annual Report. We are STILL waiting for the release of the FINRA 2008 Annual Report. Could FINRA have invested in Madoff? Could FINRA have invested in other hedge fund Ponzi schemes? Why by April 28th has FINRA still not released their Annual Report? (more…)
Where’s Harry When We Really Need Him?!
Posted by Larry Doyle on April 15th, 2009 2:39 PM |
The ratings process for the securities industry has been an absolute joke. With all due respect to those who work at the rating agencies, the business model and massive conflicts of interest have been an unmitigated disaster.
Where were the authorities with the vision to throw on the flashing yellow light in the midst of the storm? Well, we can all take comfort that the SEC has been working on reviewing the rating agencies model since late 2006 and has made 5 rulings. Over and above that, Ms. Schapiro shares with us that the SEC has undertaken further studies over the last ten months. 2006? Ten months? When the need for dynamic movements is never greater, our government continues to move at a snail’s pace.
Let’s listen to Ms. Mary Schapiro, current head of the SEC. It’s a long clip (approximately 55 minutes), but you can fast forward along the way at any time. CSPAN did not provide an embed code for this clip, but by clicking on the image below you will be brought directly to the CSPAN site and the video will begin playing.
As I listen to Ms. Schapiro pontificate about the concepts of aligning interests, business models, users of ratings, conflicts, multiple ratings, and ending reliance on ratings agencies, I have one very clear cut image piercing through my mind.
That image is of Harry Markopolos providing chilling Congressional testimony this past January on the failures of the SEC in handling the Madoff scam. I learned more about the SEC in Harry’s testimony than I had over the course of my entire career on Wall Street.
Couldn’t we use a guy like Harry running the SEC right now?
LD
Does the Palace Guard Have No Clothes?
Posted by Larry Doyle on April 14th, 2009 5:30 AM |
I eagerly await the soon to be released 2008 Annual Report of the Financial Industry Regulatory Authority (FINRA). Prior to its release and in light of all the turmoil on Wall Street over the last 24 months, I thought it may be timely to review the mission and some recent history of the “palace guard,” known as FINRA. From the FINRA website, we learn:
The Financial Industry Regulatory Authority (FINRA), is the largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,000 brokerage firms, about 173,000 branch offices and approximately 656,000 registered securities representatives.
Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.
While FINRA promotes investor protection and market integrity, the simple fact is there are still thousands of investors with an estimated hundred BILLION dollars locked up in Auction Rate Securities. The ARS market has been designated as a fraud. FINRA not only did not protect the ARS investors, but participated in the ARS market as an investor themselves. At year end 2006, FINRA had a $647 million position in ARS. Did they sell them? When? To whom? What price? If they did sell their ARS position, did they possess material non-public information and act upon it? Will the 2008 FINRA Annual Report provide answers? I can only hope. Aside from a few state attorneys general, who is truly looking to help these investors?
FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange. (more…)
Turn That Screw a Little Tighter
Posted by Larry Doyle on March 10th, 2009 6:30 PM |
The screwing that Americans have taken on the development and marketing of the scam known as Auction Rate Preferred Securities (ARPS) continues. I have written at length on how the regulatory body, FINRA, actually owned $650 million in these 
securities at calendar year end 2006. I have persistently questioned how a regulatory body could possibly own a security which was knowingly mismarketed. Was FINRA negligent, complicit, or both? Did FINRA liquidate its position prior to the market imploding on all other owners? While many institutional owners of ARPS have been made whole, many retail clients are still left holding the bag.
Well, the screw that is ARPS just got turned another notch tighter. It turns out that the issuers of ARPS (municipalities, hospitals, colleges and universities, et al) are contractually obligated to pay an ongoing underwriting fee to the Wall Street banks despite the fact that these regularly scheduled auctions no longer occur. (more…)
Keystone Kops
Posted by Larry Doyle on March 9th, 2009 5:40 PM |
On the heels of the Bernie Madoff fiasco, there was massive pressure on the gross incompetence displayed by the SEC. Not unlike a police department that is under fire, the SEC needed a high profile case to gain a measure of vindication. Enter Allen Stanford and Stanford Financial.
I am not here to defend Allen Stanford nor any of the activities that transpired in his offshore bank located in Antigua. However, the SEC also froze the assets of all clients housed in Stanford Financial’s brokerage operation based in Houston. Unlike Bernie Madoff, who did not employ a custodian, the bulk of Stanford Financial’s assets were housed at Pershing Financial, one of the largest custodians in the business. While the concerns revolving around Stanford are in the Caribbean, the SEC’s act of freezing ALL customer accounts has been the death of this brokerage entity. Hundreds of legitimate jobs have been eliminated. Thousands of customers have faced unnecessary and undue financial hardships since February 17th as a result. (more…)
Let’s Really Question Ms. Schapiro….
Posted by Larry Doyle on January 16th, 2009 2:54 PM |
In light of the disaster that is Wall Street, I do not know if I am simply dumbfounded or merely dismayed by the softball questioning of prospective SEC chairwoman Mary Schapiro yesterday.
With the dissolution of the investment banking model, the massive injections of government capital, and potential indictments of major Wall Street icons in the offing, I looked forward to some very juicy testimony. The results were beyond disappointing. The public deserves so much better.
Mary Schapiro may end up being the best SEC commissioner ever, but let’s make her earn a few stripes before anointing her. It’s not as if there isn’t enough material. Let me provide a little background before I propose my line of questioning for Ms. Schapiro.
FINRA, the Financial Industry Regulatory Authority, was formed as a result of the merger between the regulatory arms of the NYSE and NASD. While there is another securities industry watchdog, SIFMA (Securities Industry and Financial Markets Association), that body is more a trade association or good cop.
FINRA is supposed to be the real watchdog or the bad cop. (more…)
