March 27, 2021
In pondering the emergence of non-fungible tokens or NFTs, guest blogger Aegis Frumento's thoughts turn to Argentine author Jorge Luis Borges, who wrote a short story about Pierre Menard, the author of Don Quixote. Menard's Don Quixote was word-for-word identical to Cervantes' Don Quixote, and yet was a far greater novel. Why does Aegis think about such things? Who the hell knows. Maybe he needs to get out -- as do most of us these days. On the other hand, as always, in his own style, inimitable or otherwise, Aegis manages to make sense of the senseless.
In a recent FINRA regulatory settlement, Wall Street's so-called self-regulatory-organization piles up the allegations but something just doesn't add up here. Client confidences seem to have been abused. FINRA Rule 2010's lofty standard that "A member, in the conduct of its business, shall observe high standards of commercial honor and just and equitable principles of trade," seems to have been violated. Then there is the back-story that never sees the light of day in the AWC. It was a lurid tale that first caught our attention when in 2016, Cantor Fitzgerald employee Lee Stowell couldn't find her Bernie Sanders mug on her desk. When she finally found it in an office kitchen cabinet, it was filled with feces. Ah yes, another shit-storm hits Wall Street. Let's see how FINRA wipes up.
As I have written in the past, and with some frequency, I am no fan of the FINRA Investor Education Foundation. Ultimately, the Foundation may have been well-intended but my guess is that the core motivation was publicity. You know, how can we burnish the name of "FINRA?" Oh, for starters, let's set up something to do with something nebulous -- any suggestions? Oh, that's a good one, lemme write that down "investor education." Yes, I am a cynic when it comes to any company's efforts to create a foundation. The way I judge the sincerity of the undertaking is by its deeds. In that aspect, the FINRA Investor Education Foundation fails. Repeatedly.
It's not just Robinhood. It's not just GameStop. It's not all the fault of Reddit or social media. To the contrary, Wall Street expanded to a point where its operational capacity doesn't keep pace. In the rush to cut commissions, expand online trading, and cater to those eager to "play" the stock market, brokerage firms are frequently overwhelmed by surges in volume or computer outages. Sure, there are times when it's just the nature of technology. More recently, a finger might even be pointed at COVID. But where are the industry's regulators? Where are the consequences for a lack of planning or a lack of funding or a lack of management? In a recent lawsuit against Schwab, a customer raises many of these issues.
Ohio National entered into contracts with various broker dealers whereby the former compensated the latter for sales of variable annuities. The commission paid by Ohio National to a brokerage firm is undertaken pursuant to the terms of a Selling Agreement. The problem with that arrangement is that the brokerage firms sell through human beings, who are registered representatives. What happens when Ohio National terminates a Selling Agreement and stops paying commissions to the brokerage firm? Who is supposed to pay the reps their commissions? Who should they sue?