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HomeDisenchanted FINRA Member Speaks Out
Posted by Larry Doyle on February 15th, 2010 7:53 AM |
In an attempt to draw further attention to the questions of serious ethical issues in and around Wall Street’s self-regulatory organization FINRA, I am highlighting a comment left at Sense on Cents the other day. While protecting the identity of this individual for obvious reasons, I can vouch for the fact that this person works for a FINRA member firm and was present during the road shows promoting the merger of the NASD and NYSE Regulation to form FINRA.
I commend this individual for speaking out. I second the call to fully investigate the FINRA executives involved in the very formation of this organization and then the manner in which it was run.
FINRA and its board need to be compelled to fully open the books and records of this organization and its predecessors. Only then might America learn the answers to the following questions: (more…)
FINRA Board to Address Allegations of Schapiro Misconduct
Posted by Larry Doyle on February 4th, 2010 11:40 AM |
Are the wagons circling around Mary Schapiro and her former FINRA colleagues?
Regular readers of Sense on Cents are familiar with the issues and concerns I have raised repeatedly with Wall Street’s self-regulator, FINRA. I continue to believe the issues embedded within this self-regulatory organization lie near the heart of what I deem the Wall Street-Washington nexus.
Perhaps America will learn more about these issues soon. Why? Next week, FINRA’s Board of Directors will address alleged wrongdoings by Ms. Schapiro et al. What are the issues? (more…)
Auction Rate Security Anxiety Continues
Posted by Larry Doyle on December 29th, 2009 10:03 AM |
Still they wait.
$150 billion dollars.
Thousands of investors unable to access THEIR funds frozen in Wall Street’s greatest fraud, that is the world of auction-rate securities.
While an initial court ruling against Union Bank of Switzerland defined the sales and distribution of auction-rate securities as a fraud, recent court rulings have shifted the burden of responsibility onto investors.
When I worked on Wall Street, I was never involved directly or indirectly with the sales or trading of auction-rate securities. That said, I understand full well the explicit and implicit guarantees that brokers and salespeople made in distributing this product. The fact that those entities which distributed ARS have not been held to full and total account is an unspeakable travesty. The lives of investors who have been dramatically impacted get little to no attention from the media. Shame on them.
Our federal financial regulators housed within the SEC are nowhere to be found. FINRA remains in bed with the industry and would just as soon not draw attention to its own liquidation of $647 million ARS in mid-2007 as the market was failing.
Days, weeks, months, and now years pass. Where is the justice and retribution for those ARS investors still frozen and unable to access that $150 BILLION!!! (more…)
Wall Street’s Greatest Fraud
Posted by Larry Doyle on July 20th, 2009 9:07 AM |
Bernie Madoff’s Ponzi scheme has to be the greatest fraud of all time, right? Allen Stanford is likely a distant second, correct?
Well, actually, no. Madoff has certainly reserved a special place in financial ‘hell’ for his fraud, but make no mistake, the single greatest fraud ever perpetrated on investors is the collective Wall Street enterprise that marketed and distributed Auction-Rate Securities. The ARS market at its peak was a $330 BILLION market. Of that initial size, those on Wall Street tracking developments within the ARS market project that $165 BILLION held by thousands of retail and institutional investors remain frozen.
The Wall Street Journal highlights the next in what could be a long running series of ARS investigations in writing this morning, Cuomo Says Schwab Faces Fraud Suit:
In an official notice sent to Charles Schwab & Co. Friday, Attorney General Andrew Cuomo warned that his office plans to sue the largest online brokerage firm for civil fraud over its marketing and sales of auction-rate securities to clients. Emails and testimony cited in the letter show Schwab’s brokers had little idea of what they were selling and later failed to tell clients that the market was collapsing.
I am heartened to see AG Cuomo launch this action against Schwab but I wonder why he does not simultaneously take the same action against EVERY bank, broker, and investment management firm involved in the marketing and distribution of ARS.
Regular readers of Sense on Cents know that I believe the ARS trail leads back to the Wall Street self-regulatory organization, FINRA. For the benefit of our newer readers, allow me to reconnect the dots once again. (more…)
Municipal Finance: Will Uncle Sam Post Bail?
Posted by Larry Doyle on May 26th, 2009 3:09 PM |
Is every village, town, city, and state in our country poised to receive a “get out of jail” free card from Uncle Sam? I linked to The New York Times article, Localities Want U.S. to Support Muni Bonds, in the Newsworthy section of Sense on Cents. Upon further review, it deserves comment.
In my opinion, this support of the municipal market may very well represent the greatest violation of a moral hazard to date. Why? Municipalities are by edict required to balance their budgets. A municipal budget which is able to obviate the tough decisions and choices in the budgetary process will lose that rigor.
Politicians of all stripes will make the case that the municipal default rate is extremely low and, as such, a federal backstop in the form of bond insurance is truly a very low risk proposition. Please allow me to opine that the same argument was made in the quasi-guarantee provided to Freddie Mac and Fannie Mae. Those two giants are now wards of the state having been utilized by politicians from both sides of the aisle as campaign “piggy banks” for the better part of twenty years.
The New York Times highlights that the federal guarantee of municipal debt is not all that Uncle Sam may be asked to bail:
“All kinds of municipal borrowers are facing revenue shortfalls,” said Mr. Decker. “California is the largest example. Some states are better off than others. But all outstanding debt is backed by tax revenues. And municipalities are facing a greater or lesser level of distress.”
Also clamoring for help is a group of municipalities that purchased Lehman debt, which is now nearly worthless. Legislation authorizing the use of relief money to make these purchases was introduced by two California Democratic representatives, Jackie Speier and Anna Eshoo. If approved, this would be more like a bailout than a guarantee, because the federal government would be paying face value for debt that otherwise has little value.
The price tag on that proposal is around $1.6 billion. The argument promoted by the two congresswomen is that the Treasury and Fed allowed Lehman to fail, causing governmental bodies to lose money.
Whether a price tag is $1.6 billion, $1.6 million or $1.6 trillion a potential federal bailout of a poor investment decision is the antithesis of free market capitalism. Where does it end? (more…)
NASD Knew Auction Rate Securities Weren’t Cash
Posted by Larry Doyle on May 11th, 2009 10:45 AM |
Everybody knows Auction Rate Securities (ARS) were cash or cash-like, correct? FINRA certainly did NOTHING to protect investors from the ARS sales and marketing scam perpetrated on investors.
FINRA spokesman Herb Perone would like to wash his hands and those of FINRA of any negligence or incompetence in regard to FINRA’s investments in Auction Rate Securities. The easiest manner of washing one’s hands is to point the finger at the entity which initially made the investment, in this case the NASD (National Association of Securities Dealers). If you recall, FINRA was formed in mid-2007 from the regulatory arms of the NYSE and NASD. In any event, Perone tries to deflect culpability on FINRA’s part in the recently reported Bloomberg story (FINRA Oversees Auction-Rate Arbitrations After Exit) highlighting FINRA’s sale of their Auction Rate Securities prior to the market’s implosion leaving thousands of investors and billions of dollars frozen. Bloomberg reports:
“The market was functioning normally when NASD was investing in these securities,” Perone said. At the time, auction-rate securities “were viewed as high-quality cash equivalents and as acceptable investment for institutions,” he said.
Perone further offers:
“It was for cash that we needed to have parked for a temporary period of time,” Perone said. “It was common to take cash you needed to hold and put it in auction-rate securities.”
If ARS were viewed as high-quality cash equivalents, why didn’t the NASD actually account for them in that manner? The NASD goes out of its way in its Annual Reports for 2003-2005 to highlight the fact that ARS were not cash or cash-like.
From page 38 of the NASD’s 2005 Annual Report, published on May 10, 2006:
Available-for-sale investments also include investments in auction rate securities, which are either preferred stock or bonds with interest rates that reset periodically, typically less than every 90 days, based on a Dutch auction process. Given the longer-term maturities of these securities, they are classified as available-for-sale investments, rather than cash and cash equivalents.
From page 30 of the NASD’s 2004 Annual Report, published on April 29, 2005:
Available-for-sale investments also include investments in auction rate securities, which are either preferred stock or bonds with interest rates that reset periodically, typically less than every 90 days, based on a Dutch auction process. Given the longer-term maturities of these securities, they are classified as available-for-sale investments, rather than cash and cash equivalents.
From page 27 of the NASD’s 2003 Annual Report published on June 7, 2004:
Available-for-sale investments also include investments in auction rate securities, which are either preferred stock or bonds with interest rates that reset periodically, typically less than every 90 days, based on a Dutch auction process. Given the longer-term maturities of these securities, they are classified as available-for-sale investments.
I have been questioning whether FINRA was negligent, incompetent or both in regard to their investment in ARS. FINRA could not have been negligent. Their parent organization, the NASD, lays it out in three separate Annual Reports that ARS were not cash or cash equivalents.
Thus, FINRA was merely incompetent in not protecting investors, as is its mandate!!
How may this be adjudicated? It is now speculated that Uncle Sam may establish a liquidity facility which investors can tap to get their money. This liquidity facility may be part of a larger government entity. I do hope this facility is enacted and that ARS investors can receive a timely return of their funds.
However, to whom does the obligation and cost shift? The American taxpayer. Once again, the taxpayer may pick up the tab for an activity (the sales and marketing of ARS by banks and investment managers) deemed a fraud by federal judges.
LD
California Sues Wells Fargo Over Auction Rate Securities
Posted by Larry Doyle on April 24th, 2009 5:37 AM |
Something is seriously wrong in our country when the general media does not hold a financial institution to bear when engaged in a fraudulent activity.
Once again today, another suit was brought on behalf of investors in Auction Rate Securities. Bloomberg reports, California Sues Wells Over Auction-Rate Securities.
Wells Fargo just announced tremendous earnings. While a handful of banks have either settled ARS suits or paid out their investors, Wells is still holding out on investors who purchased ARS from Wells’ financial advisors.
A website dedicated to covering the ARS travesty (www.auctionratepreferreds.org) indicates that the Wells Fargo Trust division servicing institutional customers stopped marketing ARS two years ago while Wells Fargo financial advisors continued to sell ARS to retail clients.
Bloomberg highlights:
California Attorney General Jerry Brown sued units of Wells Fargo & Co. claiming they deceptively advertised $1.5 billion of auction-rate securities sold to investors in the state as being as safe as cash.
Wells Fargo Investments LLC, Wells Fargo Brokerage Services LLC and Wells Fargo Institutional Services LLC promised investors that the securities were cash-like investments similar to money-market accounts when they weren’t, Brown said in a statement today. About 2,400 Californians are unable to sell the securities, marketed as short-term investments, and access money needed to pay their bills, Brown said.
While other banks, including Citigroup, have agreed to repurchase auction rate securities they sold, the Wells Fargo units have refused to follow suit, he said. The lawsuit seeks to recover $1.5 billion and civil penalties that could amount to hundreds of millions of dollars.
“Wells Fargo’s affiliates promised investors auction-rate securities were as safe and liquid as cash, when in fact they were not, and now investors are unable to get their money when they need it,” Brown said in the statement. The lawsuit was filed in San Francisco Superior Court.
While Bloomberg has offered coverage of this ARS fraud, I have seen no other media outlet provide any coverage.
Why is it that the media will not expose the fact that the Wall Street industry watchdog FINRA had a $647 million ARS stake in 2007? Is it too much to ask a media outlet to pursue and expose the hypocrisy and incompetence of that entity and its internal investment activities?
LD
Audio Recording: NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on April 5th, 2009 9:08 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
It was a fabulous show featuring Phil Trupp, a journalist/author with more than 30 years of professional experience writing for several prestigious newspapers and magazines in the world. Trupp is currently writing MONEY ON ICE: How Ordinary Investors Beat the Biggest Fraud in Wall Street History, an exposure of the Auction Rate Securities scandal in which 146,000 investors have been bilked out of $336 billion.
Sunday night, April 5th, 2009
NoQuarter Radio’s “Sense on Cents with Larry Doyle”
In 30 Minutes, Join NoQuarter Radio’s “Sense on Cents with Larry Doyle”
Posted by Larry Doyle on April 5th, 2009 7:30 PM |
Join me from 8:00 to 9:00 p.m. ET on NoQuarter Radio for Sense on Cents with Larry Doyle. These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! With the stock market near 12 year lows, what is driving the flows? What is truly going on in the economy? Where are markets headed? What came out of the G-20? What is happening in Washington and how is that impacting Wall Street? So much to cover.
Tonight I will be speaking with Phil Trupp, a journalist/author with more than 30 years of professional experience writing for several prestigious newspapers and magazines in the world. Over the years, his investigative reporting and columns have led to congressional hearings on coal mine safety, corruption in the trucking industry, poverty in America, environmental hazards, and global warming, among other controversial issues. Trupp’s financial journalism background includes a seven-year stint as Washington correspondent and assistant bureau chief for Fairchild Publications, and as a reporter at the Washington Evening Star.
Phil Trupp is currently writing MONEY ON ICE: How Ordinary Investors Beat the Biggest Fraud in Wall Street History. It is an exposure of the Auction Rate Securities scandal in which 146,000 investors have been bilked out of $336 billion.
The developments in the markets, economy, global finance, Wall Street, and Washington are occurring at breakneck speed. I will try to slow things down a bit and provide a sense of perspective. What did we learn in the markets over the last week and month and what do they mean for the weeks and months ahead? What is happening overseas and how does that impact us here at home? What is happening in the municipal sector and how will that impact the markets and our personal finances?
(more…)
Tune in Sunday Evening to NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on April 5th, 2009 7:10 AM |
Please join us Sunday evening (tonight!) from 8-9 p.m. ET for NoQuarter Radio’s Sense on Cents with Larry Doyle. With the stock market near 12 year lows, what is driving 
the flows? What is truly going on in the economy? Where are markets headed? What came out of the G-20 Summit? How about the FASB’s easing of mark-to-market? So much to cover.
These are truly historic times in the global economy. Let’s “navigate the economic landscape” without the pandering or nonsense found elsewhere! What is on your mind? What would you like to address? Please share your questions and thoughts by calling in to (347) 677-0792, and also join our live chat room, which I’ll start up about 10 minutes before the show begins.
Tonight I will be speaking with Phil Trupp, a journalist/author with more than 30 years of professional experience writing for several prestigious newspapers and magazines in the world. Over the years, his investigative reporting and columns have led to congressional hearings on coal mine safety, corruption in the trucking industry, poverty in America, environmental hazards, and global warming, among other controversial issues. Trupp’s financial journalism background includes a seven-year stint as Washington correspondent and assistant bureau chief for Fairchild Publications, and as a reporter at the Washington Evening Star.
Phil Trupp is currently writing MONEY ON ICE: How Ordinary Investors Beat the Biggest Fraud in Wall Street History. It is an exposure of the Auction Rate Securities scandal in which 146,000 investors have been bilked out of $336 billion.
As a reminder, all NoQuarter Radio programming is archived and can be played back at any time. Just go to the NoQuarter Radio site and look for previous episodes. In addition, each program is available as a podcast on iTunes.
Many thanks to Larry Johnson and the rest of the team at NoQuarterUSA blog for providing such a vibrant vehicle as NoQuarter Radio. I look forward to having you join me Sunday evening as we collectively navigate the economic landscape!!
