Subscribe: RSS Feed | Twitter | Facebook | Email
Home | Contact Us

Posts Tagged ‘Mary Schapiro SEC head’

A Real Regulatory Review: Sense on Cents Interview with Bill Singer

Posted by Larry Doyle on June 15th, 2009 1:35 PM |

I feel so strongly about my interview last evening with Bill Singer, the preeminent veteran Wall Street regulatory lawyer and market reform advocate, that I am providing a transcript of highlights. My transcription is not totally word for word, so at the end of this post I will provide a BlogTalkRadio audio player so that you can playback the complete interview.

As time allows, I sincerely hope you read the entirety of this transcript and will listen to the complete interview. In my opinion, the issues addressed are that important. You will not be disappointed.

Given Bill’s extensive experience and relationships, he is uniquely positioned to comment on these timely and cutting edge issues. And now, on to the transcript . . .

Sense on Cents: Bill, we have just gone through a tsunami of epic proportions. Our financial industry brought our nation to its knees. We now get the sense that the regulatory oversight of our financial industry may not truly change. What are your feelings about that?

Bill Singer: I think you are right on point. My greatest fear is at the end of the day, we all go back to square one. It’s like asking for a mulligan in golf. People’s lives have been shattered and businesses destroyed. If you listen to the ‘garbage’ coming out of Washington, it’s as if the solutions are the same old things. We’ll set up panels, write papers, but what will really change?  I don’t know what planet these people are living on, but last I looked, we haven’t gotten out of this crisis. We owe the next generation a much better regulatory system and a much fairer market. You just get this overwhelming sense that the ‘fix is in.’

Wall Street is wiping their brow and sweat and saying “whew, that was a close one.” It’s as if Wall street is telling Washington, “You’re still with us, aren’t you? We’re still paying for your campaigns.” I’m just afraid that nothing will really change other than some cosmetic changes.

Sense on Cents: I hope some real statesmen step up to address these issues. Since I’ve been writing, I believe we always get into the sufficiency of regulations. Which regulations need to be improved and which should be wiped away. I strongly believe, first and foremost, any industry has to have transparency and integrity in its process. As you just mentioned, it seems as if the ‘fix is in.’

Bill Singer: Larry, I’ve been reading your columns for quite some time now. This is not the time for anybody to be blowing smoke up anybody’s “you know what.”  We have a career cast of politicians and regulators who by and large have never really worked for a living and who don’t really have a sense of what the ‘everyday Joe’ goes through. What we need right now is new ideas, new blood. You can’t break into the system. If you have been one of the individuals who has been warning about the major issues for years, you’d think that you would be invited in to ask to contribute ideas to fix them. That never happens. Those folks who regulate us are a very closed society. We have a system in our country that feeds cronyism and there is no way out of it.

I have reached out repeatedly over the years to regulatory bodies and as a 30 year veteran, and a former regulator, if I can’t even get an interview (and I’m not saying I would even want the job; they probably couldn’t afford me), that tells me how corrupt the system is.

When the public reads about Harry Markopolos and Gary Aguirre who have tried to expose issues and they aren’t embraced, that speaks volumes. Regulation has been “in bed” with Wall Street for very long. We need a vibrant and intelligent regulatory system to protect the public against fraud and the industry against its own folly. (more…)

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

What Were Ms. Schapiro’s Hedge Fund Investments at FINRA?

Posted by Larry Doyle on May 4th, 2009 8:08 AM |

As Obama looks to send a message to the American public that he will clean up Wall Street, hedge funds are “under the microscope.” Who in Washington will be delegated to lead the charge? None other than SEC head, Mary Schapiro. Bloomberg reports, SEC Chief Schapiro Wants Authority to Make Hedge-Fund Rules.

Hedge funds have become dirty words. When Washington wants to convey excessive Wall Street greed, politicians and regulators now regularly slip “hedge funds” into their statement.

As with any industry, hedge funds run the gamut in terms of business practices and ethics. It is well documented, though, that Washington solicits and receives excessive campaign contributions from the hedge fund community.

I agree that the hedge fund industry deserves greater scrutiny. A trillion dollar industry unregulated is a breeding ground for problems.

Bloomberg reports:

“It’s probably not enough just to register hedge funds” with the SEC, Schapiro said in an interview on Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend. “It may well be necessary to put in place particular kinds of rules.”

Treasury Secretary Timothy Geithner’s plan to overhaul financial oversight in response to the worst economic crisis since the Great Depression would force hedge funds to register with the SEC, subjecting firms to new disclosure requirements and inspections by agency staff. Schapiro said the SEC’s authority should be broader, so it can impose further restrictions on funds as “situations evolve.”

President Barack Obama yesterday blamed hedge funds that had lent Chrysler LLC money for triggering the automaker’s bankruptcy. Obama said the funds were “speculators” that refused the administration’s buyout offers because they were holding out for an “unjustified taxpayer bailout.”

Schapiro said “it’s certainly possible” that the SEC would consider forcing hedge funds to publicly disclose short- sale positions, imposing restrictions on leverage and restricting what the firms can invest in.

Does anybody have an issue with increased disclosure and oversight? Transparency is critically important in making sure the playing field for all investors is kept fair and level.

Ms. Schapiro does have experience with hedge funds prior to this engagement, though. As I have highlighted, Ms. Schapiro, as head of FINRA, oversaw investments within FINRA’s internal portfolio which included hedge funds, fund of funds, and private equity.

From the 2007 FINRA Annual Report:

FINRA also has investments in hedge funds and funds of hedge funds that it accounts for under the equity method and includes in other investments in the consolidated balance sheets. As of December 31, 2007, the Company had hedge fund investments of $431.2 million.

Ms. Schapiro should be compelled to share with the investing public in which hedge funds FINRA invested.

Will those funds withstand the rigor of newly proposed SEC regulation? At the very least we may learn whether Ms. Schapiro was a good steward of FINRA funds. Beyond that, we may learn a lot more.

If the Obama administration is serious about developing new regulations for Wall Street, let’s make sure the transparency includes Ms. Schapiro’s tenure at FINRA and details of FINRA’s investment portfolio!!

LD






Recent Posts


ECONOMIC ALL-STARS


Archives