The FINRA Seminar: Breakfast and Lunch with a little crow on the side?

August 15, 2008

By Bill Singer,


Three years ago, I took both the New York Stock Exchange (NYSE) and the NASD to task for their withdrawal from an industry seminar sponsored by the American Conference Institute (ACI). On May 24 and 25th of that year, the Broker Dealer Defense Forum held its second annual conference in New York City: Prevailing Against Customer Claims: Strategies for Discovery, Arbitration Hearing and Proceedings.  As I stated, in part,  in my blog entry on June 10, 2005

ACI invited representatives from the New York State Attorney General's Office, the Securities and Exchange Commission, the New York Stock Exchange, and the NASD to speak on this year's Broker Dealer Defense Forum panels. There's nothing unusual about that. It happens numerous times each year at different seminars run by many interest groups. It's a healthy and important aspect of these seminars. We debate each other, we criticize certain regulatory initiatives, the regulators criticize industry trends, and the folks attending the seminar benefit from the debate and learn valuable lessons. No one on either side of the table benefits from uninformed lawyers or poorly represented clients.

A few weeks before the scheduled May 24th kick-off of the ACI BD Defense Forum, the SEC, the NYSE, and the NASD withdrew from the conference --- after the brochures were printed, after folks had paid to hear them speak, after they had previously agreed to attend. In the NASD's March 16th letter, that organization conceded that the regulator had "agreed to participate [in January 2005]" but was "disturbed to receive the brochure for the program . . . the title and content presents a pure anti-consumer tone." In the NYSE's April 7th email, the organization said that the withdrawal was
"due to the anti-investor tone of the program's brochure. It would be inappropriate for me, or any of my colleagues, to be associated with the conference. I regret any inconvenience that my withdrawal from the program may cause you."

If you are a regular reader of mine, you know that I frequently rail against the hypocrisy within Wall Street's regulatory community.  Notable among my rants is the oft repeated refrain that the industry's cops seem to have a penchant for picking and choosing when to don the visage of high dudgeon--and that the picks and choices of when and what to attend seem too often driven by a warped calculus that favors major financial services companies and their interests.  In keeping with my gadfly role, let me share with you yet another example of the failure of our regulatory system to understand the importance of appearances and the necessity to avoid sending mixed messages.

As of this morning, August 15th, the press reports that New York Attorney General Andrew Cuomo's office is contemplating legal action against Merrill Lynch & Co. for auction rate securities (ARS) violations. Cuomo's office has also confirmed an investigation into Goldman Sachs Group, Inc.'s role in the ARS market.  In recent weeks, Citigroup Inc. , UBS AG , JPMorgan Chase & Co. , Morgan Stanley and Merrill Lynch & Co. announced plans to buy back billions of dollars worth of the securities, in part responding to regulatory pressure and/or settlement agreements with various states.

Which brings me to the point of this blog entry -- admittedly, a very blunt point...indeed!

The Financial Industry Regulatory Authority (FINRA)--that proud successor to the NYSE and NASD regulators who stood on principle in 2005 and refused to attend an industry seminar--is holding one of its own conferences.  FINRA is conducting a New York Regulatory and Compliance Conference on September 9, 2008.  I certainly don't want to be accused of falsely categorizing the purpose of FINRA's conference, so let me quote from the webpage promoting the event

FINRA's new conference addresses regulatory requirements and compliance practices of larger broker-dealers and other firms with multi-faceted-and on many occasions, global-business models. Workshops provide opportunities for regulators and industry peers to discuss strategies and solutions for regulatory matters that attendees find most urgent. 

Depending on your status, you can attend this program at the famed Waldorf Astoria for individual prices running from $650 to $1,100.  I think that includes a continental breakfast and lunch. Quite a bargain.

Of course, there is still this troubling question, which I feel compelled to raise.  Among the speakers at this regulatory and compliance forum sponsored by a regulator are folks from Merrill, JP Morgan, Morgan Stanley, and Goldman Sachs.  It's not that the folks from the aforementioned firms are speaking on their own; no, they are actually sitting on panels with their regulator counterparts from FINRA.  More to the point, FINRA is presenting these speakers (and by inference, the speaker's firms) as organizations that apparently are knowledgeable about regulation and compliance --or how did FINRA phrase it in their online brochure?  Oh, yes: "industry peers to discuss strategies and solutions for regulatory matters..."  I assume that among the strategies to be discussed with FINRA's blessings and with the complicity of its attending staff will be the strategy of promoting and selling ARS to the investing public, and the follow-up strategy of buying back those securities under threat from state regulators.  Of course, Merrill may offer a somewhat more aggressive strategy that involves not immediately caving in to pressure from state regulators and baiting states into threatening legal action.

All of which leads to my overwhelming sense of wonder.  How the hell does FINRA justify breaking bread with the same firms that are in the midst of a landmark dispute with state regulators concerning ARS policies and practices?  Given the allegedly sincere gnashing of teeth that prompted the NYSE and NASD's oh so principled withdrawal in 2005 at the ACI conference, does no one but me see the hypocrisy that is now running amok?  FINRA is not merely attending a third-party's conference.  No, FINRA is conducting a conference on regulatory and compliance matters.  FINRA has invited firms presently in the spotlight for questionable anti-consumer conduct--and some of those member firms are still in the midst of ongoing negotiations.

For the record, I think it is outrageous for any regulator to charge money to attend an event whose purpose is to educate the industry as to better practices.  Further, I cannot even begin to rationalize why it was okay for regulators to not attend the 2005 ACI conference but now okay to plan and promote this current FINRA version.  Ultimately, this is the likely flaw in self regulation.  Too much inbred conflict.  Too much myopia by self regulators that just doesn't permit a clear reading of the messages they send to the investing public and less politically connected (and smaller) member firms.