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Posts Tagged ‘Ms. Schapiro’

Low Tide Will Reveal Rats Scurrying Amidst The Garbage

Posted by Larry Doyle on April 28th, 2009 9:09 AM |

Every exterminator will tell you that he never finds just one rat. Bernie Madoff has been exposed as an enormous rodent. Is Allen Stanford also a rat? Who else may be in the pack? Mary Schapiro, head of the SEC, revealed yesterday that the SEC is reviewing 150 other hedge funds to determine whether they also operated Ponzi schemes. Reuters reports, U.S. SEC Has About 150 Hedge Fund Probes.

Hedge funds are currently unregulated. How could the SEC have found potentially another 150 “rats” in the space of a mere three months since Ms. Schapiro has been on the job? My instincts lead me to believe the following:

1. Ms. Schapiro is trying to convey a sense of leadership and progress on fraud investigations after the abysmal performance on the Madoff scheme.  The SEC needs to burnish its image and Ms. Schapiro is trying to address that with this news release.

2. I have no doubt that many other hedge funds did operate as Ponzi schemes and likely had money invested in Madoff knowing he was the largest rat.  As investigators from the SEC have reviewed the list of Madoff investors, the info there has likely led to other hedge fund frauds.

Additionally, do not forget that many hedge funds suspended redemptions in the latter half of 2008. Ponzi schemes, like rats, only thrive given a steady source of food and water in the form new investments. Suspending redemptions is akin to a rat rationing its food supply. While plenty of those suspensions could be legitimate, it would be naive to think that all of them are.

3. We know that FINRA, the self-regulatory organization overseeing Wall Street, had investments in hedge funds, fund of funds, and private equity. That info was provided in the FINRA 2007 Annual Report. We are STILL waiting for the release of the FINRA 2008 Annual Report. Could FINRA have invested in Madoff? Could FINRA have invested in other hedge fund Ponzi schemes? Why by April 28th has FINRA still not released their Annual Report? (more…)

Does the Palace Guard Have No Clothes?

Posted by Larry Doyle on April 14th, 2009 5:30 AM |

I eagerly await the soon to be released 2008 Annual Report of the Financial Industry Regulatory Authority (FINRA). Prior to its release and in light of all the turmoil on Wall Street over the last 24 months, I thought it may be timely to review the mission and some recent history of the “palace guard,” known as FINRA.  From the FINRA website, we learn:

The Financial Industry Regulatory Authority (FINRA), is the largest non-governmental regulator for all securities firms doing business in the United States. All told, FINRA oversees nearly 5,000 brokerage firms, about 173,000 branch offices and approximately 656,000 registered securities representatives.

Created in July 2007 through the consolidation of NASD and the member regulation, enforcement and arbitration functions of the New York Stock Exchange, FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

While FINRA promotes investor protection and market integrity, the simple fact is there are still thousands of investors with an estimated hundred  BILLION dollars locked up in Auction Rate Securities. The ARS market has been designated as a fraud. FINRA not only did not protect the ARS investors, but participated in the ARS market as an investor themselves.  At year end 2006, FINRA had a $647 million position in ARS. Did they sell them? When? To whom? What price? If they did sell their ARS position, did they possess material non-public information and act upon it?  Will the 2008 FINRA Annual Report provide answers? I can only hope.  Aside from a few state attorneys general, who is truly looking to help these investors?

FINRA touches virtually every aspect of the securities business—from registering and educating industry participants to examining securities firms; writing rules; enforcing those rules and the federal securities laws; informing and educating the investing public; providing trade reporting and other industry utilities; and administering the largest dispute resolution forum for investors and registered firms. It also performs market regulation under contract for The NASDAQ Stock Market, the American Stock Exchange, the International Securities Exchange and the Chicago Climate Exchange. (more…)

Will TARP Screw ARPS Even Tighter?

Posted by Larry Doyle on March 25th, 2009 1:37 PM |

screw1I have written extensively how Wall Street perpetrated a multi-billion dollar scam in the name of Auction Rate Preferred Securities (ARPS). For our newer readers, ARPS are securities funded by longer maturity underlying loans or preferred shares but marketed as short term cash or money market surrogates. How would that work? Wall Street ran very regular (weekly, monthly) auctions to provide liquidity for ARPS holders. The scam worked well until the overall market hit the skids and the Wall Street dealers backed away from providing liquidity to these supposed short term cash/money market instruments.

In the process of reviewing the underlying loans backing these deals, investors became aware of the long term nature of that collateral and thus their investment. While there is overwhelming evidence supporting the gross mismarketing of these securities, the SEC and FINRA have dragged their feet in rectifying this situation. Why? Great question.

I have highlighted that FINRA actually owned $647 million of ARPS as of year end 2006. That news is shocking to whomever I inform. Did FINRA sell their bonds? If so, to whom? When? What price? Did they front run an imploding market?

Could taxpayers via the TARP (Troubled Asset Recovery Program) actually get stuck making investors whole for a scam perpetrated by Wall Street? This fraud gets more bizarre at every turn. Welcome to the world of finance 2009.

I thank PT for sharing with me a story that broke yesterday: (more…)

Keystone Kops

Posted by Larry Doyle on March 9th, 2009 5:40 PM |

On the heels of the Bernie Madoff fiasco, there was massive pressure on the gross incompetence displayed by the SEC. Not unlike a police department that is under fire, the SEC needed a high profile case to gain a measure of vindication. Enter Allen Stanford and Stanford Financial.keystone-kops1

I am not here to defend Allen Stanford nor any of the activities that transpired in his offshore bank located in Antigua. However, the SEC also froze the assets of all clients housed in Stanford Financial’s brokerage operation based in Houston.  Unlike Bernie Madoff, who did not employ a custodian, the bulk of Stanford Financial’s assets were housed at Pershing Financial, one of the largest custodians in the business. While the concerns revolving around Stanford are in the Caribbean, the SEC’s act of freezing ALL customer accounts has been the death of this brokerage entity. Hundreds of legitimate jobs have been eliminated. Thousands of customers have faced unnecessary and undue financial hardships since February 17th as a result.  (more…)






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