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HomeWhere 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
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
