An irreverent Wall Street Blog
by Bill Singer
 
Join BrokeAndBroker blog on Facebook  Follow the BrokeAndBroker blog on Twitter  Connect with BrokeAndBroker on LinkedIn  Join Bill Singer on Google+  Subscribe to RSS Feed

FINRA's Dubious Report (Madoff, Stanford, et al.)
Written: October 2, 2009

The Financial Industry Regulatory Authority (FINRA) just issued the following press release (October 2, 2009) http://www.finra.org/Newsroom/NewsReleases/2009/P120086 :

Statement From FINRA Chairman and CEO Richard G. Ketchum on the Report of the Special Review Committee of the FINRA Board of Governors 

Today's report by a Special Review Committee of the FINRA Board of Governors is one of a number of significant initiatives undertaken by FINRA in the wake of the Madoff and Stanford scandals to better understand and correct shortcomings in our examination program. As regulators, we owe it to investors — especially those harmed by recent scandals — to develop a better, more comprehensive response to fraud, and I am committed to taking the lessons from the report's findings to make FINRA even stronger.

As the findings have concluded, a number of key points are apparent. First, FINRA must institute a number of internal reforms to better safeguard investors and the broader financial system. Second, the report calls attention to the many regulatory challenges related to jurisdictional issues and product definitions. Finally, the review points to the urgent need for financial regulatory reform that ensures comprehensive oversight, reduces jurisdictional confusion, streamlines enforcement and improves coordination and communication among all regulators.

FINRA has already taken many steps to improve its examination and fraud detection capabilities since these scandals happened. One major initiative FINRA is announcing today is the creation of a new Office of Fraud Detection and Market Intelligence. This office will provide rapid response to fraud by a staff with expertise in fraud detection and investigation. 

My reaction to the above?  Well, I can pretty much encapsulate that into a few choice words. Self-serving garbage. Nonsense. Disgraceful.

On December 12, 2008, when I was among the very first to point an accusatory finger at FINRA for the then unwinding Madoff scandal, http://www.brokeandbroker.com/index.php?a=blog&id=98 , a number of folks said that I was way off base. They said that FINRA had no jurisdiction, no knowledge, and that I was being unfair --UNFAIR!!

In March 2009, I sent a thoughtful, constructive letter to FINRA, seeking a meeting to discuss my ideas for reforming the ineffective self-regulatory organization http://www.brokeandbroker.com/index.php?a=blog&id=143 .  As is keeping with the bunker mentality of FINRA, I never got so much as the courtesy of a reply.

Finally, what kind of Report did FINRA's Special Committee author?  I see no reference to any meetings or interviews with any prominent FINRA critics -- I sure as hell didn't get a phone call or email asking my input or assistance.  How could that be?  How could an internal review of FINRA's regulatory blunders and failures have been accomplished without resort to outside critics of long-standing stature?  Or was the purpose here to simply put together something, anything, and do so with whatever damage control was credible?

I see that the "Board Advisors to the Committee" were Mari Buechner, W. Dennis Ferguson, and G. Donald Steel.  Ms. Buechner's nomination by FINRA as its Board Candidate met with opposition from three separate petition candidates in 2008. http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p117295.pdf In 2007, both G.Donald Steel and W. Dennis Ferguson were FINRA nominated Board Candidates who were opposed by a number of petition candidates. http://www.finra.org/web/groups/industry/@ip/@reg/@notice/documents/notices/p037044.pdf.  If you note the attribution over the SRO's nominees, you will see that it clearly states "FINRA Candidate" in contradistinction to "Petition Candidate."  

Seems to me, that if you're going to make an effort to produce a truly unbiased report, that you have to recognize the troubling nature of designating as Board Advisors three folks whose nominations by the FINRA Nominating Committee was found to be so unpopular as to engender grassroots opposition candidates and cause historic contested elections.  That's not to say that those three Board Advisors should not have been appointed to the Special Review Committee; but it does mean that if you are concerned about appearances and want to get to the heart of the matter, you should also have brought outsiders on board. 

Which begs the question: Why didn't the Special Review Committee also seek out those of us within the FINRA Dissident/Reform community to serve as advisors?  Sadly, I think the answer is all too obvious.

Among the four lawyers listed as Of Counsel to the Special Committee was Dennis Hensley.  I note this disclosure on Mr. Hensley's webpage at Sidley Austin http://www.sidley.com/hensley_dennis/:

  • Current member of the NASDAQ Review Council 
  • Former member, NASD Board of Governors
  • Former member, NASD Regulation Board of Directors
  • Former member, NASD National Adjudicatory Council
  • Former member and Chair, NASD District Business Conduct Committee for District 10 (New York)
  • Former member, SIA Compliance and Legal Division Executive Committee
  • Industry-Regulatory Council on Continuing Education, the body that develops and interprets continuing education requirements for broker-dealers in the US, former member
  • NASD Institute for Professional Development, created to provide a certificate program for regulatory and compliance professionals, led the design and development of the Institute’s program jointly with the Wharton School at the University of Pennsylvania, first Executive Director

Not noted on Mr. Hensley's webpage is this tidbit from his history http://registeredrep.com/mag/finance_davidson_goliath/   Geez, didn't anyone think that his inclusion in the Of Counsel array might cause some folks to cringe given the facts noted above?  

Finally, there is the question of naming names.  I cannot for the life of me find the name of a single high-level NASD or FINRA executive that the Special Committee believes was negligent, should be held accountable, and should be severely reprimanded.  I see no recommendation to fire anyone.  I guess that they just want to reshuffle the deck. Keep the same cards but let's change some names and create yet more departments.  

What is lacking in this report is what is always lacking in these types of reports. A simple recognition that there was a systemic failure at NASD and FINRA, and that the failure is largely attributable to a culture of bureaucracy and cronyism that will perpetuate itself. If heads don't roll and wholesale reforms are not enacted, you are ensuring the return of the same malfeasance and nonfeasance cited in the report.

VISIT WALL STREET'S LEADING ONLINE COMMUNITY
BrokeAndBroker.com

 


 
[^top^]

Previous Entries
October 31, 2014
On June 3, 2013, the Securities and Exchange Commission ("SEC") announced the second-largest trading suspension in its history as part of its "Operati... Read On
October 31, 2014
For one reason or another, stockbrokers may not want to maintain their personal accounts at their employer's brokerage firm. Some of the reasons often... Read On
October 30, 2014
As with virtually every job, the practice of law often becomes mind-numbingly boring. Every so often, however, the profession presents you with a fasc... Read On
October 29, 2014
When it comes to in-house compliance and industry regulatory matters, a loan is a loan and a gift is a gift -- and the two have very different meaning... Read On
October 28, 2014
Stockbroker, Compliance, Legal, and Regulatory JobsEmployment Page BrokeAndBroker.com Jobs#wallstreetjobs @brokeandbrokerNOTICE TO EMPLOYERS... Read On
October 27, 2014
They got a name for it: padding the old expense account. The way I see it, whenever some misconduct has an acronym or generally accepted term, it mean... Read On
October 25, 2014
Merrill Lynch, Edward Jones, Large Hotel Man, And Double Charges For A Few Glasses Of WineOctober 24, 2014Voices were raised, a waitress was upset, an... Read On
October 24, 2014
Voices were raised, a waitress was upset, and large man with hotel bar intervened. Now if that doesn't pique your interest, I might as well get m... Read On
BrokeAndBroker.com Job Search
Related Topics
    Tag Cloud
    Internet FINRA Bear Stearns Bloomberg SEC NASD NYSE Money Laundering Due Diligence Waiver Forbes China Chepucavage Broy Woody Allen Madoff NAC NPR Marketplace Stanford UBS Ketchum Antitrust NASDAQ RRBDLAW Schapiro Bill Singer BrokerAndBroker USERRA Brokeandbroker.com Morgan Keegan Arbitration Counterclaim BrokeAndBroker.com Khuzami BrokeAndBroker Aleynikov Goldman Sachs brokeandbroker Promissory Note U4 Bill SInger EFL CFTC Huffington Post Flash Crash arbitration RBC RRBDLAW.com Ponzi Affinity Fraud Wachovia Raymond James BrokeandBroker.com Expungement Fraud Securities Fraud Outside Business Activity Registered Rep Magazine FOREX BrokerAndBroker.com FBI Banc of America Pro Se Supreme Court Morgan Stanley Smith Barney E*Trade Margin email Galleon Penson U5 Defamation Protocol Wells Fargo Punitive Damages Citigroup Merrill Lynch ARS Employee Forgivable Loan Street Legal Morgan Stanley AWC Fidelity Bankruptcy Broke And Broker HFT David Sobel Day Trading Ameriprise Commissions Spouse Schwab Commission CRD Kenneth Starr IRS CNBC Complaint ATM Skimming Hacking Phishing Malware Naskovets Poteroba Koval Lincoln Financial Selling Away Outside Business Activities Rakoff 2nd Circuit Second Circuit IRA 401k Forgery Tax RRBDlaw.com Email Netschi Moore Whistleblower Street Sweeper Tran Bharara Facebook Online Severance Bonus Eligibility Rule TD Ameritrade Hedge Fund SAC 1099 Smith Barney Lehman Brothers SIPC IC3 Scottrade Lehman JPMorgan Chase Hertz Insider Trading Bank of America Department of Justice Elles Bribe Auction Rate Securities Raiding Spam Edward Jones Medicare Diabetes Dow Schumer Thain Walter Bid Rigging Real Estate Discrimination Wall Street Statutory Disqualification Form U4 Form U5 Indictment Boyland DOJ Corruption bill singer FTC Do Not Call FINRA Arbitration Costa Rica Settlement LIBOR Varney Plea Rule 8210 Eligibility RRBDlaw Appeal Fowler LPL Johnson US Airways Reg D MSSB Vault Loan SunTrust Discovery Employment Rosenthal Recruiting Lawyer Trading Platform JP Morgan Employment Tuesday Wrongful Termination Bank Guarantee WaMu Solicitation REIT Martin Credit Cards Rule 3050 Away Account Credit Repair PN Advisor Placement Group Forex Mortgage Private Placement Moon Merrill Anderson Exam Lee Borrowing Tax Lien Conversion Oppenheimer Wedbush Felony Misdemeanor Expenses ING Lien OTR Estate Jobs Florida Credit Card Elderly Flash Drive Annuity Expense Reimbursement FNMA BrokeAndBroke TIC DWI Promissory Notes Suitability Will POA Power of Attorney Casino NSF MF Global Counterfeit Preet Bharara Corzine Hacker RIA Prison Disclosure NASAA Aguilar FCPA Subway Identity Theft Gold Dell Bar Injunction Bank Deutsche Bank Hospital God HSBC Private Placements Eric Stein Wire Fraud CCO Joshua Brown Backstage Wall Street Obstruction of Justice Reuters Retaliation Variable Annuity Arbitraiton Outside Account Options Telephone Wine Social Media ADA Pacifico Non-Prosecution Agreement Confirm Tax Fraud Retirement OBA Equity Indexed Annuities EIA MetLife Continuing Education OIP Tax Liens Willful CE Unregistered Impersonation Annuities BBVA Business Expenses ETF JOBS Act Mail Fraud Parking Variable Annuities Signatures BitTorrent Impersonator Wire Transfer Wire Crowdfunding Nasdaq Away Accounts WSP Laptop Dodd Frank Checks RMBS AML PST Solicited Unsolicited Congress SRO Wife Discretion Non-Solicitation Restaurant Commodities Private Securities Transaction Offer of Settlement Money Market employment jobs Great Recession Chase Investment Services Arrest Barclays Liens Failure To Supervise Apple Time And Price T&P Willfully Husband Letter of Authorization LOA Sexism Debit Card Knight Test Practice Sale Unfair Competition Signature Judgments Undisclosed Settlement Trainee Fee Trust Laser Side Bar Mattera Female Sales Assistant Kennedy Charge Sexist NML Argentina Embezzlement Silver Investor Alert Judgment Bank Fraud Deceased TSSB Mary Jo White Trustee Motion To Dismiss Frumento Conspiracy 6th Circuit Proctor Rule 3040 Class Action Beneficiary NYAG Schneiderman Gallagher White Self Regulation Short Sale Compromise Website TRO Supervision Vacatur SDNY BrokeAndBroker Bill Singer Piwowar Stifel Rule 1122 Article V signature Inside Information VA Regulation SP Customer Rule 3270 Rule 3240 OWB 2Cir Stockbrokers
     
    Email Bill Singer Connect with Bill Singer on Facebook Follow Bill Singer on Twitter Link up with Bill Singer on LinkedIn Join Bill Singer on Google+