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Posts Tagged ‘lawsuits against FINRA’

Forbes’ Emily Lambert Slams FINRA

Posted by Larry Doyle on October 21st, 2011 7:00 AM |

“Justice is truth in action.” ~ Benjamin Disraeli

Regular readers are very aware of my strong concerns about the lack of transparency emanating from Wall Street’s self-regulatory organization FINRA (Financial Industry Regulatory Authority). Having first written about FINRA in January 2009, I have highlighted my concerns extensively over the better part of the last three years. (To reference my writing, go here, Sense on Cents/FINRA).

For a period of time, I thought I was shouting into the darkness regarding FINRA. I still maintain that FINRA specifically and Wall Street regulation as a whole remain great unknowns to an overwhelming percentage of our population including those involved in the markets. To this end, I am heartened when broadly distributed public periodicals address concerns I have held about FINRA for the last few years.

The widely respected financial magazine Forbes weighs in on FINRA just yesterday.  (more…)

FINRA’s Enforcement Chief, Susan Merrill, Quits; How About a Subpoena?

Posted by Larry Doyle on March 18th, 2010 10:52 AM |

Will Susan Merrill provide America with a window into the scams perpetrated by Wall Street on the American investing public? Who is Susan Merrill? Let’s navigate.

Those charged with protecting the public interest must be held to an appropriate standard. In order to promote public trust, these organizations and their executives must be held to account. If need be, that accounting should include legal discovery and, if warranted, a subpoena as well.

Susan Merrill, the head of enforcement of Wall Street’s self-regulatory organization, FINRA, is stepping down after having occupied this role for three years. Think she knows some things that the American public would like to know? No doubt.

In fact, in my opinion, Ms. Merrill most likely has a wealth of information that American investors (those she was charged to protect) and the American public at large DESERVE to know. (more…)

Financial Regulatory Reform Overlooks the Financial Industry Regulatory Authority

Posted by Larry Doyle on December 13th, 2009 11:36 AM |

Only in Washington could the promotion and passage of a piece of legislation known as Financial Regulatory Reform overlook the Financial Industry Regulatory Authority (FINRA).

How could this happen? What does it mean? Why haven’t legislators and large parts of the media questioned this reality?

I am not saying that there are not significant elements of the reform bill passed by Congress that are not necessary. But I am questioning how and why a piece of legislation that strikes at the core of the financial industry can possibly wind its way through Congress without ever addressing FINRA, the entity charged with overseeing Wall Street and protecting investors.

Our country not only needs effective and strong financial regulatory practices but, much more importantly, our country needs effective and strong financial regulatory practitioners.

Let’s return to my questions. How could this happen? What does it mean? Why haven’t legislators and large parts of the media questioned this reality?

The fact is, Congress intentionally overlooks the ineffective practitioners of financial regulation because it would expose the extensive incest amidst the financial industry, the regulatory authority, and Washington.

If Washington truly wanted to inspire confidence in financial regulatory reform and send a strong message to America that it is seriously motivated to clean up Wall Street, our leaders would publicly support the lawsuits pending against FINRA.

Regular readers of Sense on Cents know the particulars of these lawsuits well. For newer readers, I am referring to the following: (more…)

Washington Examiner: “A Fox Is Guarding the Henhouse at the SEC”

Posted by Larry Doyle on November 24th, 2009 9:26 AM |

Add the Washington Examiner to the increasing number of media outlets picking up on the stench emanating from the incestuous Wall Street-Washington relationship encompassing our nation’s financial regulatory oversight. How so? The Examiner‘s Marta Mossburg writes today, A Fox Is Guarding the Henhouse at the SEC. Who is this fox? None other than Mary Schapiro, current head of the SEC and former head of the Wall Street self-regulatory organization FINRA. Mossburg highlights:

Not everyone opposes giving government sweeping new powers like those being considered over health care and the finance industry. But everyone should care that those in power are competent, apply the law fairly and hold themselves to the highest ethical standards.

As regular readers of Sense on Cents are aware, I picked up the scent on this trail last January and have doggedly tracked it for the last ten months. I am heartened that other interested ‘hunters’ are also now putting out their ‘dogs’ in pursuit of exposing truth within our financial regulatory system so that our nation can embrace the badly needed virtues of transparency and integrity in the process.

Aside from Sense on Cents and now the Washington Examiner, who else is on this trail and tracking the scent? Barrons, Bloomberg, and The New York Times. (more…)

No Quarter Radio’s Sense on Cents with Larry Doyle Welcomes Richard Greenfield, Sunday Night at 8PM EDT

Posted by Larry Doyle on October 17th, 2009 2:31 PM |

UPDATE: This episode of NQR’s Sense on Cents with Larry Doyle has concluded. You can listen to a recording of the episode in its entirety by clicking the play button on the audio player provided below. Once the audio begins, you can advance or rewind to any portion of the episode by clicking at any point along the play bar.


The detonation of the bombs that have hit our economy may have been launched on Wall Street, but certainly the collateral damage has been experienced nationwide if not globally. While regulators were admittedly asleep at the wheel during these attacks, who in our country is now positioned to hold bankers and regulators accountable? The media? Please. Will regulators hold themselves truly accountable? Maybe on a going forward basis, at best. Then who?

Please join me this Sunday October 18th from 8-9pm EDT for No Quarter Radio’s Sense on Cents with Larry Doyle as I welcome Richard Greenfield for what will assuredly be a riveting conversation. Who is Richard Greenfield and what areas of expertise does his firm Greenfield and Goodman occupy? Why am I so excited to have him on my show?

Greenfield and Goodman concentrates its practice in complex financial litigation and, particularly, in corporate governance, banking, consumer rights and shareholder litigation.  As a direct result of the efforts of the Firm and its predecessors, many millions of dollars have been recovered for defrauded investors and other persons injured by illegal corporate activities and obtained fundamental changes in corporate governance, particularly in the areas of control procedures and risk management. The Firm and its predecessors have also been responsible for obtaining a number of particularly noteworthy judicial opinions which have not only strengthened consumer and investor rights generally, but substantially aided in the prosecution of complex litigation to preserve such rights.

As for Mr. Greenfield himself, he has a resume that just won’t quit:

RICHARD D. GREENFIELD has been admitted to practice before the Supreme Court of the United States, the Courts of Appeals for the Second, Third, Fifth, Ninth and Eleventh Circuits, various federal district courts, as well as the Courts of the Commonwealth of Pennsylvania, the State of New York and the State of Maryland.  Mr. Greenfield is a 1965 graduate of the Cornell Law School, where he was awarded a J.D. In addition, he has earned degrees in Accounting (B.S. Queens College) and Business Administration (M.B.A. Columbia University Graduate School of Business).

Mr. Greenfield is thoroughly experienced in banking, securities and consumer litigation, having served as Lead or Co-Lead Counsel for plaintiffs in  shareholder class and derivative actions alleging violations of the federal securities laws and/or breaches of corporate governance standards, in class actions brought on behalf of trust beneficiaries against major trustee-banks as well as in a wide variety of banking and consumer fraud cases. Mr. Greenfield founded and was Senior Partner in a 48 lawyer Pennsylvania-based law firm that specialized in such litigation; it was disbanded in 1993.

Rather than listing the major periodicals and news outlets in which Mr. Greenfield has been featured, it would be easier to list those in which he has not.

In the midst of all of his other professional and philanthropic activities, Mr. Greenfield is currently representing Benchmark Financial, Standard Investment Chartered, and Amerivet Securities in complaints against the Wall Street self-regulatory organization FINRA.

In the spirit of continually pursuing transparency and integrity along our economic landscape, please join me this Sunday evening for what will assuredly be a fascinating discussion with Richard Greenfield.

This show, as with all of my shows, is taped and archived along with being available as a podcast on iTunes.


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.


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!!


Lawsuits Trying for Transparency at FINRA

Posted by Larry Doyle on September 21st, 2009 2:55 PM |

Will the American public receive real transparency from the financial regulatory community? We will learn a lot more over the next 6 weeks.

Bloomberg News has filed a Freedom of Information request compelling the Federal Reserve to release information on loans it made to a wide array of banks. The Fed is currently appealing a judge’s order requiring the release of this information. The judge is expected to rule on the Fed’s appeal by month end. Sense on Cents will be monitoring this situation closely.

A second situation which has received less public notice but is no less important revolves around two lawsuits filed by a Washington D. C. law firm, Cuneo, Gilbert and LaDuca against FINRA (Financial Industry Regulatory Authority). High five to BA for bringing this story to my attention. The Corporate Crime Reporter highlighted these suits the other day and writes:

They say sunlight is the best disinfectant.

If so, then Jonathan Cuneo is on a campaign to disinfect FINRA.

Cuneo and his law firm – Cuneo Gilbert & LaDuca – have three lawsuits pending against the Financial Industry Regulatory Authority (FINRA).

In each, FINRA is being represented by F. Joseph Warin of Gibson Dunn & Crutcher.

“FINRA is the largest private regulator for all securities firms doing business in the United States, yet it is run like a secret society,” Cuneo told Corporate Crime Reporter. “The organization claims to promote transparency in the financial industry, while simultaneously fighting a battle to hide very basic information from its members and the public. Our lawsuits challenge this secrecy and aim to bring accountability to this organization.”

Two of the lawsuits – Benchmark Financial Services v. FINRA and Standard Investment v. FINRA – allege that FINRA member firms are due more than the $35,000 they received as part of the 2007 merger between National Association of Securities Dealers (NASD) and the regulatory arm of the New York Stock Exchange – a merger that resulted in the creation of FINRA.

At the time of the merger negotiations, NASD told its members that because it was a non-profit, the most it could pay each firm was $35,000.

But in March 2007, the Internal Revenue Service (IRS) issued a private letter ruling which indicated that in fact NASD could pay a lot more than $35,000.

How much more is a secret.

Earlier this month, the Second Circuit Court of Appeals ruled that amount of money the IRS said NASD could pay each firm was confidential.

The NASD told its members at the time of the merger negotiations that the source of the $35,000 “was projected future savings resulting from anticipated efficiencies of the consolidated entity.”

“This was false,” the Benchmark lawsuit declares. “The true source of the funds was an over $1 billion fund that constituted a portion of NASD’s member’s equity, a pool of cash that had been amassed largely as a result of the development and sale of the NASDAQ stock trading system.”

“The misrepresentation was designed to deceive members into believing that they should accept the amount offered lest they upset the NASD’s projections of future efficiencies and cause difficulties for the consolidated entity going forward. Defendants knew that if they told members the truth – that they would be paid $35,000 each (or a total of $175 million) out of their own equity fund of more than $1 billion – they risked a wide-open evaluation demand scenario that would have delayed, invited more scrutiny concerning – and potentially even threatened – the whole transaction.”

The Benchmark lawsuit alleges that one motivation for the merger was to secure higher executive compensation for officers.

Mary Schapiro is currently the chair of the Securities and Exchange Commission (SEC).

Before leaving to the SEC, Schapiro was CEO of NASD, then FINRA.

In 2006, before the merger, Schapiro’s compensation was $1.9 million.

In 2007, as head of the newly created FINRA, her compensation jumped to $3 million.

“The amounts of total executive compensation are eye-popping by any measure, but are especially staggering for a non-profit institution,” the lawsuit alleges. (more…)

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