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HomeBREAKING NEWS: Amerivet Complaint Against FINRA Alleges Madoff Investment
Posted by Larry Doyle on August 25th, 2009 10:47 AM |
Two weeks ago, Amerivet Securities filed a complaint against FINRA (Financial Industry Regulatory Authority), the Wall Street self-regulatory organization. This morning, Donna Mitchell of Financial Planning provides further insight on this complaint. Ms. Mitchell writes FINRA Rebuffs Amerivet’s Demand to Inspect Records. She reports:
The Financial Industry Regulatory Authority (FINRA) says it will not open its books and records to inspection by Amerivet Securities, the California brokerage firm which recently sued the regulator.
“We disclose a great deal of public information in our annual reports, far more than we are required to do,” says Herb Perone, a spokesman for FINRA. “Our records are not open for public examination.”
Sense on Cents questions why any financial self-regulatory organization mandated to protect investors would not be required to fully open all of its books and records for public review. Additionally, having extensively studied all of FINRA’s annual reports as well as those of its predecessor, the NASD, I echo the questions being raised by Amerivet. Does FINRA have any appreciation for the need for total truth and transparency in our markets and economy? The questions beg: why won’t FINRA fully open its books? are they trying to hide something? do they have reason to be concerned?
OPEN THE BOOKS!!!
Financial Planning continues:
The request for records is part of a civil suit filed Aug. 10 in the Superior Court of Washington, D.C., by Inglewood, Calif.-based Amerivet Securities. It stems from a July 23 letter sent to FINRA from Amerivet, in which the company initially asked to review FINRA’s documents.
In the lawsuit, Amerivet accuses FINRA of a litany of wrongdoings, from mismanaging the organization’s investment assets to placing substantial funds with Bernard L. Madoff Investment Securities, the former broker-dealer and investment advisory firm that was brought down amid a $65 billion Ponzi scheme.
WOW! The allegation of an investment by FINRA in Madoff is a BLOCKBUSTER. What information did Amerivet and its legal representation unearth to make this allegation? This information must be revealed and FINRA must open its books and records to address this charge. (Click on image to access copy of Amerivet complaint)
Financial Planning further reports:
Amerivet also alleges that FINRA failed to regulate and oversee the operations of large securities firms such as the former Bear Stearns & Co., the former Lehman Brothers, Merrill Lynch & Co., and Stanford Financial Group.
Amerivet also claims that FINRA overpaid its executives, sustained investment-related losses of $568 million and separately incurred substantial losses in the auction-rate securities market. “FINRA has failed in what it represents in its advertising to be its core function, i.e. the protection of investors,” Amerivet says in the lawsuit.
Is there any doubt that FINRA has failed to protect investors? Is there any doubt that senior executives at FINRA were paid handsomely?
In regard to the auction-rate securities allegation, is Amerivet maintaining that FINRA lost money on the ARS which it owned or is Amerivet referring to money lost by investors? Details of FINRA’s liquidation of ARS in 2007 must be released. Did FINRA front-run the market in the course of selling its own ARS?
OPEN THE BOOKS!!
Financial Planning gains a degree of insight from FINRA and reports:
FINRA would not comment about the lawsuit directly, but Perone said the organization had steered clear of investing with Madoff.
“As for any claim or question as to whether we had money invested with Madoff, we had no investments of any kind in Madoff or in any of its feeder funds,” Perone said.
The allegations and implications of the Amerivet complaint strike right at the core of our financial regulatory framework. Any credible media outlet should be running the Amerivet complaint as a lead story.
The American public deserves answers.
OPEN THE BOOKS!!
LD
Related Sense on Cents Commentary:
Amerivet Securities Files Complaint vs. FINRA for Release of Investment Information and More (August 17, 2009)
FINRA Must Play by Its Own Rules (August 19, 2009)
*****************************
UPDATE as of 11:20AM – Financial Planning has removed from its website the article referenced in this post. I am in the process of receiving the actual Amerivet complaint and will review it and comment later this afternoon.
UPDATE as of 12:05PM – I just received a copy of the Amerivet Securities vs. FINRA complaint. See pages 8-9, points #24-28 for details regarding the allegation that FINRA was invested with Bernie Madoff.
Is the Securities Investor Protection Corporation (SIPC) a Mere Facade?
Posted by Larry Doyle on August 11th, 2009 4:55 PM |
What good is insurance if after the storm you do not get paid? What good is insurance if the premiums charged are so badly mispriced that they misrepresent and do not cover the embedded risks? Welcome to the world of the Securities Investor Protection Corporation.
Is SIPC a mere facade presented by the Wall Street titans?
Let’s get the take of those who recently relied upon SIPC to fulfill its obligations. To whom do I refer? The victims of the Madoff scam.
If these investors were not protected, then how are we to believe that other investors will be protected on a going forward basis?
Why do I make that statement? None other than current head of the SEC Mary Schapiro addressed this topic in recent Congressional testimony. In a press release put out by Madoff victims, Schapiro admitted that SIPC did not have sufficient funds to pay all of the Madoff claims.
Who funds SIPC? The Wall Street banks. Yes, those banks that have been printing massive revenues and believe that they are back to ‘business as usual.’ Why aren’t the premiums immediately increased on these institutions to properly compensate Madoff victims?
To the extent that certain Madoff investors were aware of the Ponzi scam, obviously they should not receive restitution. I have to believe that number is in the distinct minority.
Given the general lack of confidence in our financial regulators,(the SEC and FINRA) would Congress have the heart and courage to take on the financial behemoths on Wall Street in an attempt to protect the investing public?
These questions and issues lie at the core of badly needed financial regulatory reform. Yes, that reform which seems to be on the back burner now that the markets have rebounded and Wall Street is printing money once again.
Make no mistake, though, that pot is still boiling and these questions need to be fully addressed and answered to the public’s satisfaction.
For a deeper understanding of these questions from the perspectives of the victims of the Madoff scam, please read this recent press release from the Bernard Madoff Victims Coalition. Click on the image below to access a PDF of the full 2-page press release. Let me know what you think.
LD
Municipal Money Market Funds: Caveat Emptor
Posted by Larry Doyle on June 29th, 2009 6:17 PM |
If and when your money market fund “breaks the buck,” will you be there to collect the change?
I believe it is increasingly likely that money market funds will “break the buck.” The recent SEC statement put forth by SEC Chair Mary Schapiro, which I highlighted in writing “The Buck Is Beginning to Break”, addresses this topic.
In that post, I specifically referenced my concern for municipal money market funds given the recent launch of a municipal version of an Auction-Rate Security, designated as an x-Tender by Wall Street. I walked you through the processing and packaging of this mystery meat in writing, “The Wall Street ‘Sausage Making’ Process.”
Today the Wall Street Journal offers another whiff of the factory and gives us further reason to stay away from municipal money funds specifically. The WSJ writes, Mutual-Fund Giants Give Mixed Reviews to SEC Proposals:
The SEC proposed requiring retail money-market funds to have at least 5% of their assets in cash, U.S. Treasury Securities or securities that are accessible within one day and at least 15% in assets that can be converted to cash within a week. Institutional money-market funds would be required to have at least 10% of assets in instruments that could be converted into cash within one day and at least 30% in securities that could be converted within one week. The rules wouldn’t apply to tax-exempt, municipal money-market funds. (LD’s emphasis)
Why and how is it that newly designed rules for a $3.8 trillion sector of the market can exclude a sector encompassing municipal funds? My antennae went up immediately upon reading that. What is different about municipal money market funds that would exclude them from a set of rules designed to protect investors?
Why doesn’t the WSJ itself pursue this line of questioning in writing the article. How can the industry segregate municipal money market funds?
Municipal finance has been largely dependent on newly defined Build America Bonds which entail an obligation by Uncle Sam. Call me suspicious, but I wonder if the exclusion of municipal money market funds is due to the hoped for salvation of municipal finance via the municipal auction-rate security, x-Tender, otherwise known as Porky Pig here at Sense on Cents.
I will keep my nose to the ground in an attempt to sniff this out. Anybody who can help us determine the nature of this stench, please share. In the meantime, stay away from municipal money market funds.
LD
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…)
Where 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
How Courageous Is Mary Schapiro?
Posted by Larry Doyle on June 4th, 2009 11:57 AM |
Does SEC chair Mary Schapiro have the personal courage to lead a new and emboldened financial regulatory regime?
Ms. Schapiro has always been viewed as being far too cozy with the financial industry. Sense on Cents first crossed paths with current SEC chair Mary Schapiro this past January at the time of her exceptionally easy confirmation hearing. At that point and since, the Wall Street Journal, Bloomberg and others have weighed in that Ms. Schapiro is “no regulatory heavyweight.”
Let’s check back and see if Ms. Schapiro is breaking off the Wall Street shackles. The Washington Post does us the favor of reporting this morning, SEC Chief Strives to Rebuild Regulator:
Schapiro is working to step up enforcement efforts, pushing cases linked to the financial crisis and freeing investigators to more vigorously pursue financial wrongdoing. She is also pursuing regulations to govern hedge funds, derivatives, short-selling, money managers, corporate disclosures and governance.
I am heartened by Ms. Schapiro’s aggressive posture. That said, I am not about to accept purely on face value that Ms. Schapiro is “changing her game.”
On the heels of the financial fiasco on Wall Street, there is doubtless lots to clean up. However, Ms. Schapiro has to appreciate that many question her courage in taking on this task. Why? Very simply, her track record as head of Finra saw an unprecedented drop in sanctions and fines. As the WSJ highlighted this past January:
Fines collected and sanctions assessed by Finra under Ms. Schapiro’s leadership dropped by 73% (in 2005, prior to Ms. Schapiro assuming leadership, Finra collected $150 million in fines. In 2006, Schapiro assumed the leadership reins and that number moved to $75mm. It dropped further to $50mm in 2007, and $35-40mm in 2008).
Against that backdrop, Ms. Schapiro has a lot of work to do to change her own image along with that of the SEC. The WaPo reports that Schapiro is aware of this fact. Schapiro states as much:
“I wanted to be very clear almost from my first day — not just with words, which are pretty easy to string together, but with actions — that this is a new SEC that is moving in a decidedly different direction and at a decidedly different pace,”
Additionally, Schapiro comments,
“Our markets are vulnerable if we’re not able to restore confidence,” Schapiro said. What investors “need to see is that the rules that are in place and will be in the future are enforced and aggressively enforced. If they don’t see that, their reluctance to engage the capital markets will be pretty significant.”
The media continues to rail on Schapiro, the SEC, and Finra for having missed the Madoff scam. Those protests are totally justified. It has been almost 7 months since Bernie turned himself in to authorities and little progress is provided to the public on the investigation.
In my opinion, though, Ms. Schapiro has other dirty laundry that needs a full and public airing.
The U.S. attorney in Brooklyn along with the SEC are currently investigating former executives from Lehman for potentially front running the Auction Rate Securities market in 2007. I call upon Ms. Schapiro to release information regarding Finra’s liquidation of its own Auction Rate Securities holdings in the same time period. Full details on this story are included in U.S. Attorney and SEC Investigate Lehman’s Auction Rate Securities Sales; They Should Also Investigate FINRA’s.
Ms. Schapiro may have to recuse herself in the process of a full and thorough investigation of Finra and its ARS sale. As with any real leader, if she has absolutely nothing to hide, then she should have no problem recusing herself. As she herself said, “our markets are vulnerable if we’re not able to restore confidence.”
Does Ms. Schapiro have the courage to investigate Finra and her own tenure in an attempt to restore that confidence?
LD
Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity
Posted by Larry Doyle on May 18th, 2009 12:38 PM |
Will our future regulatory structure of the financial industry allow capitalism to thrive? Will the political wizards in Washington prioritize personal agendas and expediency over unquestioned transparency and integrity? I believe we are at a critical regulatory crossroads not seen since financial regulations implemented in the Securities Act of 1933.
Do the powers that be both in Washington and Wall Street understand the magnitude of responsibilities and obligations involved in this process? Initial returns are decidedly mixed. The debate by those intimately involved in the regulatory oversight is typically framed as a question of sufficiency. That is, does the industry have enough regulation or not?
The media often frame the debate in political terms between laissez-faire proponents and those favoring increased government intervention. Both camps are missing the bigger picture, because both camps are feeding from the same trough. Allow me to expound.
The critical regulatory question facing our markets is not of sufficiency but is one of transparency. Regrettably, both ends of the regulatory spectrum do not want to address this glaring shortcoming because it exposes the very nature of the incestuous relationship between Wall Street and Washington.
The mainstream media, to a large extent, is dependent on both Wall Street and Washington for their financial well being so they do not press or pursue the need for total regulatory transparency. Fortunately, Sense on Cents and other leading financial websites are not under this restriction.
Let’s dig deeper and review where regulatory developments stand currently. As the Financial Times reports, U.S. Poised For Finance Regulation Shake-Up:
Congress will next month start the biggest regulatory overhaul of the US financial system in decades, bringing into the open a frantic lobbying effort between banks, regulators and policymakers on what it contains and who pays for it.
The House financial services committee, chaired by Democrat Barney Frank, will hold hearings early in June into reforms outlined by Timothy Geithner, Treasury secretary, say people familiar with the timetable.
Regrettably, before the debate even begins the premise of sufficiency versus transparency is accepted without question. Well, Sense on Cents is questioning the lack of transparency and resulting integrity of the process, which by its very nature strongly influences the outcome. Allow me to be more specific. Much as the Parliament in the U.K. is being rocked by a current scandal over expenses submitted by legislators, I strongly exhort those who truly care about capitalism, free market principles, and our democracy to address the very nature of the relationship betwen the banks, regulators, and policymakers. (more…)
Getting the Board out of Management’s Pocket
Posted by Larry Doyle on August 26th, 2009 11:42 AM |
I strongly believe the failures in our economy are often the result of failed management. Who is charged with overseeing management? The board of directors. If management has failed, then certainly the boards have also failed.
I addressed this point in my commentary this morning, “Sarkozy Ups the Ante on Banker Compensation.” I wrote:
How have boards become so deeply entrenched with management? Is there anything that can truly be done to address this enormous problem? Continuing on this theme of the corporate governance responsibilities of boards of directors, The Wall Street Journal addresses the topic in writing, Fight Brews as Proxy Access Nears:
Why would management fight this? Control and power. New board members not aligned with current management will likely ask for increased exposure and transparency. What a novel concept.
We can always count on the heavy lobbying powers to weigh in to protect the status quo. A lot of good that has done us within our financial industry as I highlighted last March in writing, “How Wall Street Bought Washington.” The WSJ continues: (more…)
Tags: company board election process, factSet SharkWatch, Fight Brews as Proxy Access Nears, investors want access to board seats, John Finley of Simpson Thacher and Bartlett, lobbyists fighting proxy access rules, management wants control and power through board, Mary Schapiro, Mary Schapiro comments on proxy access rule, new board members will want increased exposure and transparency, proxy access rule, proxy access rule 14a-11, relationships between Wall Street boards and management, Sarkozy comments on banker pay, Wall Street boards, Wall Street management and boards
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