Handicapping the FINRA CEO Race: The Touts Weigh In

January 29, 2009

By Bill Singer

http://RRBDLaw.com

http://BrokeAndBroker.com

I recently read an Investment News story: Rumors fly over who'll be next Finra CEO (January 29,2009) in which Bruce Kelly wrote that at a recent Financial Services Institute (FSI) conference, some participants were discussing successors to departed FINRA CEO Mary Schapiro and that among

Those [names] being bandied about as potential replacements for Mary Schapiro, who now heads the Securities and Exchange Commission, include Rick Ketchum, CEO of NYSE Regulation Inc.; Annette Nazareth, a former member of the SEC; and Douglas Shulman, commissioner of the Internal Revenue Service.

As I have recently written in this Blog, FINRA has apparently decided to conduct the search for its next CEO in a less that open manner.  The self-regulator once named the names of folks on its CEO Search Committee but has now simply announced the formation of committee without disclosing who is on it. Without any question, FSI and its members have every right to muse about proposed candidates for FINRA's CEO slot, and, even more, should exercise those rights to ensure that the very best candidate is selected.  Nonetheless, since FINRA has decided to cloak its search in far more secrecy than in years past, it is all the more critical that the self-regulator clearly disclose any discussions it has had or is having (or will have) with any trade organization concerning the search.  While I am not suggesting that FSI or any other group would be floating names at the behest of interested parties, I am nonetheless concerned that the report of FSI's members' preferences does not mislead the FINRA search committee.  

In the recent high-profile case of In the Matter of Next Financial Group, Inc.(June 18, 2008) http://sec.gov/litigation/aljdec/2008/id349jtk.pdf, the Securities and Exchange Commission imposed a $125,000 fine and a Cease and Desist order for recruiting tactics in violation of Regulation S-P.  On Page 17 of that Decision, it is noted that

NEXT also took a more serpentine route to make its position known. In April 2007, NEXT persuaded the Financial Services Institute (FSI) to issue a "Member Briefing" that echoed the points in its Wells submission (DX 70).11 The trade press also portrayed NEXT's position sympathetically.12

11 FSI describes itself as an advocacy organization for independent broker-dealers and their registered representatives (DX 69 at 3). It was organized in January 2004. Many of the independent broker-dealers who founded FSI were previously members of the FPA-an organization that submitted comments during the rulemaking proceeding that led to the promulgation of Regulation S-P. See supra note 7. Two of the attorneys who represent NEXT in this proceeding prepared FSI's Member Briefing (Tr. 725-26; DX 70 at 13).

As the SEC set forth in the Next case, FSI is an advocacy organization. As such, FSI likely acts in what its management team believes is the best interests of its members. Whatever those considerations are, they may involve conflicts that would favor the selection of one candidate over another -- again, understandable and common, but we need to make sure that whatever influence and access at FINRA that FSI has is counter-balanced by similar opportunities for other groups.

It would be silly to opt for a system of floating trial balloons for a Ketchum or a Nazareth, and seeing how they rise. That would not produce a robust roster of qualified candidates.  I would have much preferred for FINRA to have fully disclosed who was picked to serve on its search committee, what criteria were used, and how that committee plans to obtain a master list of names to consider.  If the task is to be accomplished by asking some attendees at various trade conferences who they like, it reduces the undertaking to nothing more than handicapping at a racetrack.  On the other hand, that's how things seem to have been done at NASD and now FINRA for far too long -- pals, cronies, and insiders. 

Having spoken to a number of FINRA participants (both from the dissident/reform community and otherwise), I can confirm that Douglas Shulman would certainly be a welcome CEO at FINRA.  He won a reputation for himself as a contemplative, fair, and courteous regulator--qualities that would be welcome at FINRA's helm.  Who else would I add to the stew?  For starters, how about someone like Barry Goldsmith, click on his name to see his impressive background.  For the record, Barry and I banged heads more than anything; nonetheless, he was a class act, a tremendously skilled regulator with impeccable credentials, and someone for whom I have the rarest of accolades as a regulator: I trusted him.  If FINRA were re-populated with a management team of the likes of Shulmans and Goldsmiths, the industry and the investing public would be far better served.

Frankly, all that I and other FINRA dissidents/reformers are asking for is a fair opportunity to be heard and to participate in the selection process for this most important of regulatory jobs.  While it's fun to look for the rumors and tidbits of gossip, there has to be a more respectable way to replace Mary Schapiro.