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Posts Tagged ‘Herb Perone’

ARS Update April 2013: The Nightmare Continues

Posted by Larry Doyle on April 25th, 2013 8:43 AM |

Five plus years after the meltdown of the largest fraud ever perpetrated on Wall Street, and the nightmare that defines the world of auction-rate securities goes on.

While Wall Street, Washington, and the media would very much like to leave the pain encompassing the ARS market largely in the rear view mirror, for many individuals who still hold on to the hope that they may ultimately get repaid in full from these widely distributed “cash-surrogate” instruments, the pain and anxiety remain front and center.

I continue to hear regularly from many individual ARS holders.

Not that anybody needs further reason to know that individual investors on Wall Street are at an enormous disadvantage in the face of captured and corrupted regulators and institutions that possess more information, but a recent piece of data I unearthed while working on my upcoming book (think I might be able to get Mary Schapiro to come to a book signing and autograph some copies!!??) speaks volumes to this point.  (more…)

An Open Letter to the Board of FINRA Regarding Auction-Rate Securities

Posted by Larry Doyle on July 27th, 2009 3:17 PM |

To: The Board of the Financial Industry Regulatory Authority (FINRA);
FINRA Investment Committee;
FINRA Audit Committee

From: Larry Doyle, Sense on Cents

Re: Auction-Rate Securities

I am a longstanding Wall Street veteran, a private investor, an avid supporter of free and fair markets, and a financial blogger at my site, Sense on Cents.

I launched my website/blog earlier this year specifically to help people more fully understand the economy and the markets during these challenging times.

In my opinion, the greatest challenge facing our markets and our country at this time is the question of confidence and integrity in the system. Little surprise why the topic of financial regulatory reform is receiving so much attention.

Against that backdrop, I am heartened by recent increased legal action taken primarily by selected attorneys general in pursuing entities involved in the fraudulent marketing and distribution of Auction-Rate Securities. We could debate at length why and how the ARS market failed, but there is no doubt these securities, sold as cash surrogates, were distributed in a fraudulent fashion. Thousands of investors and approximately $165 billion in ARS remain frozen.

I view the ARS market as having three legs — issuers, investors, and distributors (both primary Wall Street banks/brokers and downstream entities). Who was situated at the epicenter of this debacle charged with protecting investors? The SEC and FINRA.

FINRA specifically occupied a position not only as a regulator but also as an ARS investor. Whether FINRA representatives want to believe it or not, any semblance of rational and prudent thought would determine that FINRA was conflicted as a result.

Having written extensively on this topic and engaged FINRA spokesperson Herb Perone on this issue, I call upon you, the members of FINRA’s Board, Investment Committee, and Audit Committee, to release all pertinent details involved with FINRA’s liquidation of their ARS position in 2007.

Why is this necessary? Very simply, in order to regain total confidence in the markets it is of paramount importance that there be complete transparency and integrity on behalf of the regulators. To that end, for the benefit of all issuers, investors, and distributors of ARS, I believe it is incumbent on you to release the following information regarding FINRA’s liquidation of ARS:

1. Date of sale

2. To whom or through whom did the liquidation occur?

3. At what price did FINRA sell their ARS?

4. Why did FINRA decide to liquidate the entire $647 million ARS at that time?

5. Did FINRA possess material non-public information at the time of liquidation and act upon it?

6. Given that FINRA is charged with protecting investors, and given its position in the financial industry, how and why did they not post an investor warning about the freezing and subsequent failure of the ARS market prior to its complete failure in early 2008? How many investors and how many dollars could have been protected in the process?

I issue this letter publicly hoping that others may also be able to utilize the information contained herein and generate the release of this information.

In the spirit of full disclosure, I have never owned an Auction-Rate Security. I write merely as a private individual interested in helping the thousands of investors looking for a timely return of their capital.

I thank you.

Respectfully,

Larry Doyle
http://www.senseoncents.com/about/

Where Is Finra’s 2008 Annual Report?

Posted by Larry Doyle on June 8th, 2009 10:33 AM |

Finra released its 2007 Annual Report in mid-April 2008. Here it is June 8, 2009 and Finra has yet to release its 2008 Annual Report. What is going on? Aside from speculating, I called Finra this morning to inquire.

A source from within Finra’s Media Source division informed me to call back in a month. I questioned how and why in a period of economic and market dislocation, and with a heightened sensitivity on increased regulatory transparency, that Finra is being less transparent. I received a healthy dose of red tape and little direction.  I have a call into Finra spokesman Herb Perone. That said, June 8, 2009 and no Annual Report.  “Call back in a month.”

Why do I want to review Finra’s 2008 Annual Report? I know that fines and sanctions collected by Finra diminished by approximately 30% over the last year. The WSJ highlighted that information and I expounded upon it in writing, How Courageous is Mary Schapiro? My specific area of interest is a review of Finra’s investments within their own internal portfolio.

Recall that from their investment portfolio, Finra sold $647 million (position as of year end 2006) of Auction Rate Securities in Spring 2007. What did Finra do with their investments in hedge funds, fund of funds, private equity, common equities, and fixed income? Would Finra be so forthcoming as to provide insight as to why they needed to raise all that cash from the Auction Rate Securities liquidation?

Our markets and economy are screaming for increased transparency and regulation in an attempt to reinstill a measure of investor confidence.

Finra is prominently situated as a Wall Street regulatory body. Finra is currently being less transparent than a year ago. Why? Ms. Schapiro at the SEC and Richard Ketchum, new head of Finra, can TALK all they want about increased transparency and stiffer regulations. Talk is cheap. Information is everything.

“Call back in a month…” does NOT get it done.

LD

U.S. Attorney and SEC Investigating Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s

Posted by Larry Doyle on May 21st, 2009 11:34 AM |

The Wall Street Journal reports this morning Lehman Role Probed in Selling Securities:

The Justice Department has questioned several former executives at Lehman Brothers Holdings Inc. as part of its criminal investigation into whether they sold supposedly safe, liquid securities to clients while knowing that the market for the securities was drying up.

Prosecutors from the U.S. attorney’s office in Brooklyn and lawyers from the Securities and Exchange Commission in recent weeks interviewed several former executives who ran Lehman’s auction-rate-securities business, these people said. Auction-rate securities are short-term debt instruments in which the interest rates reset at periodic auctions.

The inquiry centers on whether Lehman employees defrauded customers as the market for these securities broke down in 2007. Authorities want to know if Lehman executives got these auction-rate securities off the firm’s books and into client accounts at a time in which the securities were becoming hard to sell, according to the people with knowledge of the matter.

Authorities also want to know if executives knew the market was in trouble and sold their own personal holdings of auction-rate securities, which could constitute insider trading, according to the people. (LD’s highlight)

I wrote on January 16th, “Let’s Really Question Ms. Schapiro.” In that post, I was raising the same questions about FINRA that the U.S. Attorney is now raising about the Lehman executives. I wrote:

Additionally, as of the end of 2006, FINRA acknowledged that the assumed portfolio held a cool $647 million dollars in Auction Rate Securities!!!

For those not familiar with Auction Rate Securities, this sector of the market totally imploded last Spring leaving institutional and individual investors holding the bag. While many institutional investors were made somewhat whole via settlements from the larger broker-dealers, many individual investors remain holding the bag as smaller broker-dealers, who did not necessarily underwrite these securities but did distribute them, have not been forced to make clients whole. WOW!!!

Are you kidding me!!?? The main regulator of the financial industry happens to be an investor in securities which virtually every Attorney General in the country is going after every Wall Street institution for improper marketing and distribution!! Are we looking at gross negligence, ignorance, incompetence or all of the above?? The question that MUST be answered is what has FINRA done with these Auction Rate Securities. Do they still own them? Did they liquidate them? If so, when and at what price? How was the sale negotiated? So many questions.

Over and above that, given that Ms. Schapiro is the chief executive of FINRA, don’t you think it would have been appropriate for her to address which hedge funds, fund of funds, and private equity shops were in FINRA’s portfolio? FINRA’s Annual Report categorically states its’ investment committee addresses any potential conflicts of interest. The public deserved to have this topic openly addressed during Ms. Schapiro’s hearing. WHY? For the simple reason that FINRA is feeding from the very same trough it is supposed to be regulating.

I followed this post up with numerous other posts raising the same questions. On March 31st, I wrote “Before Any Fraud Ensued,” in which I aggressively put forth:

Given that there is public acknowledgement by a federal judge that a fraud had ensued in the marketing and distribution of ARPS, let us return to the case Sense on Cents has been highlighting. FINRA’s Annual Report for 2007 publicy records that FINRA owned $647 million ARPS at year end 2006.

The questions that need to be answered:

1. Was FINRA defrauded in the purchase and sale of their bonds?

Note from LD: I have subsequently unearthed, in reading NASD Annual Reports from 2003-2005, that FINRA assumed the ownership of their ARS holdings from NASD. I highlighted as much in my post, “NASD Knew Auction Rate Securities Weren’t Cash”

2. If FINRA has sold their bonds subsequent to the publishing of that report in April 2008, to whom did they sell them? at what price? on what date?

Note from LD: The Bloomberg article from April 30th, FINRA Oversees Auction-Rate Arbitrations After Exit offered the following color addressing FINRA’s sale of their ARS holdings:

Finra, responsible for educating and protecting investors, owned as much as $862.2 million of the debt before exiting the market in the spring of 2007, less than six months before auctions began to fail, according to spokesman Herb Perone.

3. Did FINRA have material non-public information at the time of sale, if in fact they sold them? Did they act on that information?

Note from LD:  Today’s WSJ article is further acknowledgment that the Auction Rate Securities market was failing in 2007. FINRA first apprised investors of concerns in the ARS sector in Spring 2008. If in fact the ARS market was failing in 2007, the pressure on FINRA needs to increase. FINRA must release the trade information on their sale of ARS. Without that information, how can the investing public have any confidence in the integrity of FINRA and its procedures. Returning to my March 31st post:

Let’s put this into layman’s terms. FINRA was supposed to be overseeing and regulating the casino on Wall Street. In the process of regulating the casino, it appears that they put some of their own chips into one of the games. That game, ARPS, turned out to be a fraud, as publicly acknowledged by U.S. District Judge Lawrence McKenna in this case with UBS.

DID THE SECURITY GUARD, FINRA, PROTECT THE OTHER PATRONS AS REQUIRED OR DID THE SECURITY GUARD PROTECT HIS OWN INTERESTS TO THE DETRIMENT OF THE OTHER PATRONS?

Now here we are on May 21st, 2009. The questions that the U.S. Attorney is looking to get answered by Lehman executives are the EXACT questions that FINRA executives also should be compelled to answer.

Do you think representatives from the U.S. Attorney’s Office, the SEC, and defense counsel may also want to know the answers to these questions as well?

LD






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