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HomeMadoff Victims Call Out FINRA
Posted by Larry Doyle on September 3rd, 2009 8:26 AM |
Is Uncle Sam, in the form of the SEC, attempting to issue a mea culpa, mea culpa, mea maxima culpa in the bungling of the Madoff investigation and trying to conveniently turn the page?
The American public learned very little with the release of the SEC Inspector General David Kotz’s review of the SEC’s failure to expose the Bernard Madoff Ponzi scheme. In fact, having just finished reading the Executive Summary of his investigation, I would maintain it is largely an extended regurgitation of much of what Harry Markopolos provided in his Congressional testimony last February.
What was Harry’s conclusion of his exhaustive pursuit to expose the Madoff scam? The SEC is incompetent.
What was the Inspector General’s conclusion from his investigation? In so many words, Kotz lays out the same results. The SEC was incompetent on so many fronts from the early 1990s until Madoff was exposed last December. For those who would like to read Kotz’s 22-page summary of his investigation, just click on the image below.
Is this all the public gets? Is this all the public can expect from our regulators? Nothing more than a mea maxima culpa? How about a real pursuit of the total truth? This Madoff affair has many more legs. Let’s navigate.
Ronnie Sue Ambrosino, head of the Madoff Victims Coalition for Investor Protection (my guest on NQR’s Sense on Cents with Larry Doyle on August 16th), and her husband Dominic comment on the Inspector General’s report and simultaneously call out FINRA last evening during an interview on Fox Business News.
Ronnie Sue and Dominic effectively connect the dots while highlighting the following:
1. Current head of the SEC Mary Schapiro formerly headed FINRA
2. Harry Markopolos defined FINRA as being “in bed” with the industry when he provided Congressional testimony this past February detailing his decade-long pursuit to expose the Madoff Ponzi scam.
3. FINRA had an internal investment portfolio (Sense on Cents would add that the portfolio was invested in hedge funds, fund of funds, and also had hundreds of millions in Auction-Rate Securities).
4. Amerivet Securities has recently filed a complaint against FINRA. The complaint indicates it has information and reason to believe that FINRA’s investment portfolio invested in Madoff.
Sense on Cents would add that the Amerivet complaint looks to have FINRA provide a full and thorough review of the following:
>> interactions with the major Wall Street banks
>> its compensation practices
>> its liquidation of its auction-rate securities position in 2007
>> all investment activities
Sense on Cents would further add that the Madoff family had extensive relationships with the NASD, Nasdaq (Bernie helped establish this exchange) and FINRA.
Let’s listen to Ronnie Sue and Dominic Ambrosino:
Is the Madoff investigation over? Any rational individual can understand there are many more regulatory questions needing answers. Where do those questions lead us? Inside FINRA and specifically to its investment portfolio. Why shouldn’t a Wall Street self-regulatory organization mandated to protect investors be obligated, and if need be compelled, to provide total transparency of all its business dealings?
I can only hope major media outlets and Washington pick up this story and understand the need to fully investigate FINRA.
I ask you again . . . is the Madoff investigation over? Not by a long shot!
What do you think?
LD
Related Sense on Cents Commentary:
“Amerivet Complaint Against FINRA Alleges Madoff Investment” (August 25, 2009)
NoQuarter Radio’s Sense on Cents with Larry Doyle Interviews Head of Bernard Madoff Victims Coalition (August 16, 2009)
“FINRA Is Supposed to Police the Market” (April 29, 2009)
“Riveting Testimony from a Great American, Harry Markopolos” (February 4, 2009)
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.
FINRA Must Play by Its Own Rules
Posted by Larry Doyle on August 19th, 2009 11:21 AM |
Will the pressure being applied on FINRA compel this Wall Street self-regulatory organization to open its books and records? I am heartened and hopeful that the complaint filed by Amerivet Securities against FINRA will do just that.
High five to RS for sharing this complaint, Amerivet Securities v. Financial Industry Regulatory Authority.
Amerivet requests FINRA open its books for purposes of reviewing FINRA’s (and the NASD’s) engagement, oversight, and investment activities broadly speaking.
My major axe with FINRA remains its liquidation of Auction-Rate Securities in 2007. I would ask the judge who is hearing the Amerivet complaint to review a September 2008 document produced by FINRA in regard to the Auction-Rate Securities debacle. I submit Testimony by Susan L. Merrill, Executive Vice-President, Chief of Enforcement, Concerning Auction-Rate Securities Markets to Committee on Financial Services U.S. House of Representatives September 18, 2008.
Ms. Merrill promotes that as part of FINRA’s investigation of the ARS market, it would also focus on:
possible conflicts of interest where a firm may have been in possession of knowledge about ARS failures and liquidated their proprietary ARS positions by selling those positions to customers or ahead of customer liquidations.
Ms. Merrill, Ms. Schapiro, Mr. Ketchum, and members of the House Committee on Financial Services, Sense on Cents calls on all of you to hold FINRA to the same standard you would apply to every bank, broker-dealer, and money manager involved in the Auction-Rate Securities market.
I can only hope the judge handling the Amerivet complaint is able to review Ms. Merrill’s testimony.
FINRA must release all information regarding the liquidation of ARS from its investment portfolio in 2007.
What is good for the goose is good for the gander.
LD
Amerivet Securities Files Complaint vs. FINRA for Release of Investment Information and More
Posted by Larry Doyle on August 17th, 2009 11:53 AM |
The temperature is rising in the FINRA kitchen!!
Major high five to ARS investor ED for pointing out a breaking Bloomberg story that strikes right at the heart of our financial regulatory failings over the last number of years. Bloomberg reports Iraq Vet Asks Why Securities Overseers Can’t See.
This complaint encompasses a number of questions Sense on Cents has been asking over the last several months. As Bloomberg reports:
Amerivet Securities Inc. v. Financial Industry Regulatory Authority, a complaint filed in the District of Columbia Superior Court on Aug. 10 against Finra, the regulator whose Web site boasts of “proactively addressing emerging regulatory issues before they harm investors or the markets.”
If you can stifle your chortling over Finra’s psychotic break of a self-description and pay attention, the Amerivet complaint is example of regulators and those they regulate at their farcical finest.
Plaintiff Amerivet is run by Lieutenant Colonel Elton Johnson Jr., a one-time Special Forces soldier who served two tours of duty in Iraq in the U.S. Army Reserve, earning a bronze star and other decorations. Johnson has a long history with Finra — previously NASD — whose enforcement arm first went after him in 1997, censuring and fining him for violations of minimum capital requirements and for failing to file municipal securities offerings on a timely basis.
Complaining to Bush
Most recently, Finra suspended him as a supervisor from December 2006 to June 2008 because he didn’t properly manage an employee. Johnson says in his stockbroker records that the case was retaliation by Finra, which didn’t like it when he wrote to President George W. Bush to complain about how Finra was treating him.
While it does seem more than a little weird that Finra would bring a case in 2006 based on actions that happened a decade earlier, it’s hard not to wonder whether Johnson — with Army obligations, a real estate license, a firearms business and a private-detective operation — is a guy who might be a tad too busy to keep up with the details that a well-run brokerage firm should attend to.
His lawsuit against Finra, though, provides a funhouse window into what’s wrong with securities regulation. (more…)
A Ponzi Scheme by Any Other Name
Posted by Larry Doyle on August 17th, 2009 8:26 AM |
What investor does not want to allocate some portion of his portfolio to safe, liquid investments? Who hasn’t said to his broker or financial planner exactly what The Wall Street Journal reports this morning, ‘I Just Wanted to Play It Safe,’ in regard to the Wall Street Ponzi scheme designated as auction-rate securities?
The WSJ provides these conversations as evidence collected by New York Attorney General Andrew Cuomo in his case against Charles Schwab. As you read these conversations, I am sure it is easy to picture yourself as one of these customers:
Customer from Massapequa, New York
Customer: “You know, I’m not trying to make a ton of money. I just want to play it safe.”
Broker: “Understood.”
…
Broker: “When you go to get out of this, even though you tell the rep sell it that means you want to stop the auction. The hardest part of this auction is getting into it. That is the tough part. Getting out of it is easy as just selling.” (more…)
New York Times ‘Kisses’ Raymond James on Auction-Rate Securities
Posted by Larry Doyle on August 2nd, 2009 3:34 PM |
My heartbeat accelerated this morning upon reviewing page 2 of The New York Times. As I perused the headlines of the lead articles, I saw Investors Without a Lifeline in the Sunday Business section. Could this be the article that would fully expose the fraud involved in the sales and marketing of Auction-Rate Securities? Would investors finally get some satisfaction in publicly exposing all those involved in Wall Street’s greatest fraud?
While I am heartened by any public attention regarding the ARS fiasco, this report by The New York Times falls woefully short. Let’s reveal color and analysis that The New York Times and every other credible business outlet should feel obligated to provide. In doing so, I can only hope that investors still holding ARS, whether sold by Raymond James or any other entity, can move one step closer to a return of their capital along with interest and penalties.
The New York Times hardly lands a blow on Raymond James in the ARS fiasco. In fact, I would define the reporting as the equivalent of a ‘kiss’ in what should be a brawl. The reporter, Gretchen Morgenson, does not even venture to ask who is supposed to protect investors before making an investment or a lifeline after the fact. The answer to those questions are the SEC and FINRA (Financial Industry Regulatory Authority).
While Raymond James has $800 million in ARS exposure, that figure only represents approximately .5% of the total outstanding exposure. Why does Ms. Morgenson focus strictly on Raymond James and not the entire industry? (more…)
No Time for Complacency on Insurance and Money Fund Exposures
Posted by Larry Doyle on July 29th, 2009 1:02 PM |
Despite the rise in the equity markets and supposed hints of stability in the economy, this is no time to get complacent about your investments. The transition we are experiencing in the economy and the markets will present real opportunities, but also real risks.
On the topic of risks, it is of paramount importance that all investors get full information from your brokers and financial planners across all your exposures. Do not allow those managing your money to indicate ‘the market feels OK here’ and leave it at that. Why? Significant underlying fundamental risks remain in the market. I am reminded of two of them this morning as I read the following about insurance companies and money market funds:
1. Experts Call for Fed Involvement in Insurance Industry — but to Different Degrees; InvestmentNews, July 29, 2009
Members of Congress are being urged to create — at a minimum — a new regulatory body within the federal government to focus on the insurance industry. “There is some systemic risk in insurance requiring a regulator,” said Travis Plunkett, legislative director of the Washington-based Consumer Federation of America, who was part of a panel of experts testifying today at a Senate Banking Committee hearing on modernizing insurance regulation.
“In order to fully understand and control systemic risk in this very complex industry, the federal government should take over solvency and prudential regulation of insurance as well.
This shift in regulatory oversight of the insurance industry would be a massive undertaking. Recall that all insurance companies are currently regulated at the state level; however, state insurance reserves to protect policyholders against defaults are woefully deficient.
The Wall Street Journal touches upon this as well, in writing Syntax Error? Life Insurers and Earnings:
Some life insurers used the recent market upturn to raise more than $10 billion in combined capital. Hartford Financial Services Group and Lincoln National, which report after the market closes Wednesday, accepted Treasury Department money. The injections have scaled back doomsday scenarios, as well as liquidity concerns that made a few insurers short-selling favorites.
At Hartford and Lincoln, analysts are watching closely to see if the government bailouts may be tainting the insurers in consumers’ eyes.
While certain banks were forced to take TARP money, for Hartford and Lincoln taking TARP became a necessity. If I had exposure to these institutions, I’d be monitoring them very closely. I’d do the same with all my insurance exposures.
2. Money Funds Are Ripe for ‘Radical Surgery’; Bloomberg News; Jane Bryant Quinn writes:
I’m among the last people standing who think that Paul Volcker is right about money-market mutual funds. They pose a systemic risk to the financial system and need a radical fix.
When a central banker of Volcker’s magnitude raises a concern of systemic risk, I am all ears. Virtually the entire money market industry is currently backstopped by Uncle Sam. How many of these money funds may ‘break the buck‘ without some form of assistance? Bryant asserts:
In most cases, money-fund sponsors have come to the rescue of their funds if any question arose about the $1 value of their shares. Peter Crane, president and founder of Crane Data LLC in Westboro, Massachusetts, says as many as one-third of the funds will have needed support by the time this global financial squeeze abates.
But you can’t be sure that sponsors will always be willing or able to bail out their shareholders, says Jack Winters of Hingham, Massachusetts, an expert who worked in the industry from 1976 to 2008 and commented on the SEC proposals.
“Dealers supported auction-rate securities for 25 years until their financial situation precluded it,” Winters says.
We know all too well how the ARS debacle unfolded.
No time for complacency!!
LD
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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:
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
Tags: Auction Rate Securities, auction rate securities settlement for Pinnacle Airlines, auction rate securities settlements, Danielle Romero-Apsilos comments on Pinnace ARS settlement, how did Pinnacle Airlines receive an auction rate securities settlement, Pinnacle Airlines Flight from Auction Rates Costs $16 Million, Pinnacle receives ARS liquidity and a call option, terms of Pinnacle Airlines auction rate settlement, why did Pinnacle get auction rate liquidity but not other ARS investors, would Citigroup offer Pinnacle settlement to other ARS investors
Posted in ARPS, ARS, Auction Rate Securities scandal, Citigroup, General | 2 Comments »