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Posts Tagged ‘FINRA and ARS’

Obama and SEC Should Check FINRA’s Dirty Laundry

Posted by Larry Doyle on July 10th, 2009 4:50 PM |

Quiet, clean, effective organizations don’t need major advertising campaigns. Their professionalism and demeanor speak volumes.

Why does FINRA feel it needs to now advertise aggressively? As any individual knows, the best form of advertisement is word of mouth. If FINRA, and its parent organizations, had performed over the years, they would not now be in the position of having to spend a dime on advertisements.

Against that backdrop, President Obama is throwing around some heavy artillery on the financial regulatory front. I feel strongly that we do not merely need some new weapons, but much more so new generals and a new financial regulatory structure overall.

Bloomberg highlights, Obama Seeks Power for SEC to Prohibit Wall Street Pay Practices:

The Treasury Department today sent Congress legislation that would let the SEC ban “sales practices, conflicts of interest and compensation schemes” deemed harmful to investors. The measure authorizes the agency to remove individuals who violate rules from all aspects of the industry, rather than just a specific segment such as selling securities or managing money.

Who is charged with protecting investors? FINRA.  If FINRA had been performing, would new legislation even be necessary? No way. Rather than new legislation, how about we have a new regulatory body that is not funded by Wall Street firms. Dissolve FINRA and restructure it.

Bloomberg continues:

President Barack Obama’s SEC proposal is part of the overhaul of financial regulations in response to the worst economic crisis since the Great Depression. Lawmakers have vilified securities firms for selling investors unsuitable products and basing pay on how many transactions bankers execute without regard to whether deals succeed in the long term.

Unsuitable products? None more unsuitable and fraudulently distributed than our favorite, that being Auction-Rate Securities.  Last we checked there are still thousands of investors with approximately $165 BILLION ARS frozen.  Dissolve FINRA and restructure the regulatory oversight of Wall Street.  Expose all the firms involved in the ARS fraud, including FINRA itself!!

Bloomberg addresses another hot topic:

The plan targets mandatory arbitration agreements, granting the SEC power to prohibit them in contracts consumers sign with brokers, investment advisers and those who sell municipal bonds. Mandatory arbitration bars customers from suing financial professionals in court.

Who is charged with overseeing arbitration? You guessed it…FINRA. If  all these problems exist within the space FINRA is charged with overseeing, perhaps the problem is as much the overseer as those overseen. Sense on Cents feels strongly that without implementing a dramatic structural change of FINRA, we will largely run in place.

Bloomberg finishes by reporting:

The measure gives the SEC authority to reward whistle blowers who give the agency tips about those violating all securities laws. The SEC currently has power to pay individuals who provide the agency with tips on insider-trading violations.

Retroactively, the SEC should find some manner for rewarding Harry Markopolos for displaying the guts and integrity in pursuing the Madoff scam.

In regard to the ARS scam, perhaps the SEC could send a strong signal to ARS investors by compelling FINRA to release all the details on the sale of its $647 million ARS position in Spring 2007.  If the powers that be at the SEC are unaware of FINRA’s liquidation of ARS, just ask their boss Mary Schapiro, who came from FINRA.

For what it is worth, the SEC still has not responded to my communication with them addressing all these topics.

While Barack, Turbo-Tim, and team want to arm the SEC and in turn FINRA with new tools to cleanse the system, they may want to start by checking  the dirty laundry within FINRA itself.

LD

“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






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