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Is the Wall Street Cop, FINRA, Ready to Talk?

Posted by Larry Doyle on September 22nd, 2009 9:00 AM |

Pressure does funny things to people.

Is the pressure boiling inside the pot of the Wall Street “cop” known as FINRA getting ready to blow? A Bloomberg report indicates the steam is rising inside FINRA. I am not surprised that FINRA is feeling real pressure at this point in time. FINRA should be sweating. Why? Try the following:

>> Lawsuits Trying for Transparency at FINRA (September 21, 2009)

>> Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff (September 15, 2009)

>> An Open Letter to the Board of FINRA Regarding Auction-Rate Securities (July 27, 2009)

>> U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s (May 29, 2009)

Bloomberg reports this morning, FINRA Board Said to Debate Releasing Report on Madoff, Stanford:

The U.S. brokerage regulator’s board is debating whether to release an internal report of its examinations of firms run by Bernard Madoff and R. Allen Stanford, according to people familiar with the matter.

Why should there even be a debate? Why isn’t it standard operating procedure that a financial self-regulatory organization such as FINRA would be mandated to provide total transparency of all its business dealings? Where FINRA has failed, transparency will serve as the  leverage to compel them to improve their policies and procedures. If current policies and procedures and past failures are exposed in the process, so be it. History has always shown that coverups only make bad situations worse.

I am heartened that FINRA board member Charles Bowsher, a man of real integrity, seems to be pushing FINRA to release information. Bloomberg asserts:

Bowsher, the committee’s chairman, is adamant the document be released, according to one person. He didn’t return a phone call seeking comment.

Finra spokeswoman Nancy Condon said the board formed the committee to review the examination program “in light of the Madoff and Stanford cases.” A draft was shared with the board, which will decide whether to release it, she said yesterday. She declined to comment on whether any board members oppose making the document public.

Finra, funded by Wall Street firms and overseen by the SEC, inspects and write rules for more than 5,000 U.S. brokerages. The board includes 10 representatives of the financial industry along with former regulators and academics.

Recall that to this point, FINRA has never willingly released information on its internal investment or oversight activities over and above what has been published in its annual reports. FINRA spokespersons, Herb Perone and Nancy Condon, have always maintained FINRA has released more information in its reports than it is required. If in fact that is true, then clearly FINRA’s overseer, the SEC, needs to increase those requirements.

The simple fact is, given the historic times in which we live any self-respecting financial regulator should be obligated to provide full and total transparency across all its initiatives. While FINRA may be embarrassed – if not worse – in the process, FINRA must provide this transparency if we are ever to regain confidence in our markets and our regulators.

Why else may FINRA want to talk? In a current lawsuit brought by Standard Investment vs. FINRA, the judge assigned to hear the case is none other than our friend of the American public, Jed Rakoff. Yes, the same Jed Rakoff who recently undressed the SEC’s contrived $33 million fine levied on Bank of America and stated the fine, “does not comport with the most elementary notions of justice and morality.”

Yes, indeed, pressure does funny things to people!!

LD






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