FINRA Fires (Streamlines) Five Regulators

January 21, 2010

Dan Jamieson of InvestmentNews reports Finra Laying Off Five Enforcement Officials, Report Says (January 21, 2010) that the self-regulator is terminating

  • Katherine Malfa, vice president and chief counsel,
  • Rory Flynn, vice president and chief litigation counsel,
  • Evan Rosser, vice president of strategic planning,
  • Michael Armelin, an assistant director, and
  • a fifth unnamed individual from its New York office.

If you revisit my December 8, 2009 column: Regulators Plead Poverty, you will see one of my diatribes about the hypocrisy that masquerades as Wall Street regulation.  In that article, I noted that no sooner had the SEC warned Wall Street against laying off compliance staff and cutting-back on compliance, then FINRA offered early-retirement to its most senior staff (about 10% of its workforce).

In 2008, thirteen current or former FINRA executives made more than $1 million per annum in compensation. Such outlandish salaries were forked over in a year when the self-regulator lost nearly $700 million!

Although, former FINRA CEO and current SEC Chair Mary Schapiro is paid $162,900 for her stewardship of the SEC, she had recevied $3.3 million in 2008 compensation from FINRA and another $7.2 million in accumulated retirement-plan benefits in 2009.   On top of that, she apparently didn't need to devote her full-time to regulation at  FINRA's because she also served  as

  • Director of Kraft Foods Inc. from July 2001 to January 15, 2009
  • Lead Director of Kraft Foods Inc until January 15, 2009;
  • Director of Duke Energy Corp. from 2006 to January 15, 2009; and
  • Trustee of Franklin & Marshall College

It gets better.  In 2009, FINRA reportedly set aside $1 million for Capitol Hill lobbying efforts.

In his story, Jamieson quotes FINRA spokesperson Herb Perone as stating,  "At two and a half years out from the creation of Finra, we continue to look at ways to streamline our management structure."

That's odd.  Indeed.  My recollection is that when the old NASD and New York Stock Exchange were seeking approval to merge into the FINRA behemoth, among the foremost arguments made by the merger's proponents were the economies of scale.  Consider these remarks by former FINRA Vice Chairman Doug Shulman (currently the Commissioner of Internal Revenue) on October 4, 2007:

The most visible step we have taken to keep pace with the changing marketplace is the NASD/NYSE regulatory consolidation. This plan combines NASD and NYSE member regulation into a single, new self-regulatory organization, the Financial Industry Regulatory Authority.

The consolidation is helping us to establish a more sensible and less complex regulatory regime with a single set of rules adapted to firms of all sizes and business models. There is now one set of examiners and one enforcement staff.

We will also look toward fashioning the new rulebook in a more targeted way taking into account firm size and business model. We believe that this tiered approach to regulation should yield a rulebook better rationalized between intent and impact and, therefore, more efficient regulation.

Nearly three years since the merger that created FINRA and it appears that the more sensible and less complex regulatory regime isn't all that it was cracked up to be.  Apparently it was bloated enough to now require early retirement offers and lay-offs.  As to that bally-hooed consolidation -- geez, how much longer you folks going to take to produce that single set of rules?  And if there is one set of examiners and one enforcement staff, then why are there still two separate regulatory websites for FINRA/NASD and NYSE?

Of course, I still hear FINRA Spokesperson's Herb Perone's comment ringing in my ears.  FINRA continues to look at ways to streamline management.  Don't you just love those euphemisms?  I'm sure former management types such as Ms. Malfa and Messrs. Flynn, Rosser, and Armelin are happy to know that they were not simply fired but more grandiosely streamlined for the more efficient FINRA of tomorrow.  Of course, silly me, I might have decided to streamline the million dollar lobbying effort in order to retain my regulatory staff -- or maybe terminate all those self-serving advertisements trying to reassure the public that FINRA is ever vigilant. 

I'm glad to see that FINRA is learning the painful lessons of Bear Stearns and Bernie Madoff.  You see, the problem, the whole problem, all along, was that the regulator was too fat and needed to be streamlined. Yeah, that's the ticket. Dump a few Chief Counsels and Directors. Pay million-dollar salaries to a few big shots. Run some public service announcements. Undertake a Congressional lobbying campaign for another million. Plead poverty. Hit the talking points about efficiency. Ask for more money.