FINRA's Petulance: No Longer a Laughing Matter

August 17, 2009

In yet another round of jaw-dropping revelations, FINRA's Executive Vice President Daniel Sibears advised the Senate Banking Committee investigating the massive fraud perpetrated by the Stanford Financial Group, that the self-regulatory organization (SRO) (formerly NASD) flubbed its handling of tips from the industry about the Stanford fraud. (See, : a policy to only follow up on complaints from customers, not [industry] employees).

I would urge you to consider the three blogs and one magazine article that I have authored about the symptomatic nature of regulatory disinterest in tips from certain whistleblowers or informants.  Moreover, as noted in one blog below, NASD/FINRA seems too focused on massaging its message to its members and the industry -- hence a three-year old, idiotic job posting from the self regulator.  Little did I know how prescient my remarks would prove to be. 

Regulation -- and particulary the self-regulatory form -- is just too much about the art of the spin. By locating a Wall Street regulator in Washington, D.C., we have promoted a culture of public relations rather than uncompromising regulation. FINRA and its execs should worry less about retaining power and expanding the self regulator's reach, and should cultivate a more pre-emptive and consistent effort to regulate what's on the SRO's plate. Clearly, FINRA's reach far exceeds its grasp.

Moreover, FINRA truly needs to do some soul searching.  The regulator's apparent contempt for registered persons now seems obvious (See,  the Street Legal article below). Similarly, my failed efforts to arrange for a meeting to discuss various reform initiatives are now publicly documented. What could be worse than to simply point to my very public written offers to meet confidentially with FINRA, and that regulator's arrogance in not even having the courtesy to respond!

Where some apologists and market pundits pooh-boohed NASD/FINRA's behavior as a prerogative or simply childish petulance, I belive that Sibears' revelations to the Senate cast such conduct in a far more sinister light: It is now becoming an impediment to meaningful regulation.