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Posts Tagged ‘FINRA owned ARPS’

Wall Street Journal Goes in the Tank for FINRA

Posted by Larry Doyle on September 25th, 2009 9:18 AM |

When did real journalism move from asking the hard questions and demanding answers to the mere parroting of a party line? Recent polls indicate a lessened confidence in the media in our country. Why? Journalism has largely abdicated its responsibility to be the public conscience. I see evidence of this ‘parroting’ in today’s Wall Street Journal, which reports After 27% Fall, FINRA Plays It Safe.

FINRA, the Wall Street self-regulatory organization, has been under increasing pressure lately with the spotlight focused primarily on its investment portfolio activities. FINRA has provided virtually little to no transparency and, as such, currently faces 3 lawsuits by member firms. There is no doubt in my mind that today’s WSJ article is an attempt by FINRA to display a degree of transparency in order to keep the wolves at bay. Is FINRA fully transparent? Not in my opinion.

Did the WSJ pursue this story or was it conveniently placed to deflect the heavy criticism and charges FINRA faces in the lawsuits? Make no mistake, the WSJ has been largely absent in aggressively covering developments in and around FINRA. The returns generated by FINRA’s investment portfolio and its shift to a conservative strategy have been widely disseminated over the last few months and were highlighted here at Sense on Cents on June 29th when I wrote “FINRA 2008 Annual Report: A Special Type of Hubris”:

I personally believe it is very important for a financial self-regulatory organization, such as FINRA, to be totally transparent in every regard. Why? Very simply, transparency promotes confidence and FINRA’s position as a financial regulator should begin and end with that goal.

Against that backdrop, FINRA should not directly manage any of their own funds. To do so is an open invitation for conflicts of interest. FINRA’s own investment portfolio, managed by an Investment Committee, generated a negative 26% return in 2008. In April 2009, the FINRA portfolio shifted to a lower volatility approach but in 2008 it continued to have exposure to hedge funds, fund of funds, and private equity. As much as I believe this is a very big deal, it pales in comparison to the major issue I, and others, have with FINRA: their involvement with Auction-Rate Securities.

Why do I feel so strongly that the WSJ is serving as a mouthpiece for FINRA rather than truly digging for total transparency? Let’s zero in on how the WSJ addresses this auction-rate securities angle. As we do this, please recall the following:

1. $165 billion ARS remain frozen in investor accounts

2. A federal judge has designated the sales and marketing of ARS to be a fraud

3. FINRA did not post on its own website the failing nature and ultimate total failure of the ARS market until 2008, well after it liquidated its own position.

The WSJ, a proud financial periodical, provides less than cursory coverage to this piece of the FINRA story, in writing:

Finra used an outside consultant, Jeffrey Slocum & Associates of Minneapolis, to help choose money managers. In 2006, Finra hired as chief investment officer Boris A. Wessely, then treasurer at the Rockefeller Brothers Fund. Ms. Schapiro succeeded Mr. Glauber as the agency’s CEO in mid-2006.

One early step by Mr. Wessely’s team was the mid-2007 sale of about $650 million of auction-rate securities. The sale wasn’t influenced by any sign of weakness in the auction-rate market, which froze in 2008, but instead was a move to diversify Finra’s short-term investments away from such a niche product, people with knowledge of the move say. (LD’s highlight)

People with knowledge of the move say?? That is the best the WSJ can do to pursue what truly happened with FINRA’s sale of ARS? That statement is the equivalent of FINRA or whomever the ‘people with knowledge’ stating, ‘you’ll have to trust us on this.’

I would put forth that the days of blind trust are over and that for the thousands of investors sitting with those $165 billion in frozen ARS the days of verification are upon us.

I reiterate my longstanding call that FINRA must reveal all the details surrounding its ARS liquidation. Those details include the date of liquidation, the proceeds, the dealer or dealers through whom FINRA liquidated the ARS, and most importantly whether FINRA possessed material, non-public information and acted upon it.

I fully appreciate that my writing and questions here are aggressive, but at this point in our country’s history the American public deserves nothing less than full and total transparency from its financial regulators. Regrettably, both FINRA and the WSJ fall woefully short in providing it.

Comments, questions, constructive criticisms always appreciated.

LD

ARS Investor Makes Public Plea

Posted by Larry Doyle on May 3rd, 2009 2:02 PM |

On the heels of Bloomberg breaking the news of FINRA’s investment in Auction Rate Securities, I have received a number of e-mails from ARS investors thanking me for my pursuit in publicizing that information. One e-mail in particular touched me. This investor purchased ARS from Oppenheimer. His e-mail to attorneys general around the country and major media outlets is powerful. I share his questions; they deserve answers. With the writer’s permission: (more…)

“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

“Before Any Fraud Ensued”

Posted by Larry Doyle on March 31st, 2009 1:31 PM |

There seems to be a growing stream of information and activity surrounding the travesty with Auction Rate Preferred Securities, otherwise known as ARPS.  Citigroup and Wachovia just settled a $4.7 billion claim brought by California investors. Oppenheimer Holdings, based in Toronto, is considering incorporating itself in the United States in an attempt to receive government funds via the TARP (Troubled Asset Recovery Program) to settle outstanding claims by ARPS investors. 

This morning, Bloomberg reports UBS Auction-Rate Securities Suit Dismissed by Judge. What is this? No fraud was perpetrated? Did the investors not properly make their claim? Was UBS not liable in the underwriting and selling of ARPS? Is Sense on Cents making no sense with all the writing on this topic? Let’s review what the judge in this case has to say: (more…)






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