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FINRA Is Supposed To Police The Market

By Larry Johnson on April 29, 2009 at 5:50 PM in Current Affairs, Economy, FINRA

Larry Doyle first wrote about the fact that FINRA had invested in Auction Rate Securities on January 16, 2009. At that point, and in light of the softball questioning accorded Mary Schapiro in her nomination process as new head of the SEC, Larry wrote, “Let’s Really Question Ms. Schapiro.”

Larry pursued this story with a number of major media outlets and is thrilled to have Bloomberg News break the story. Larry highlights this morning, “FINRA Is Supposed to Police the Market.” This current piece (published below) covers Bloomberg’s story, which includes quotes from Ms. Schapiro and investors still frozen with Auction Rate Securities. Larry’s piece also includes a link to his entire coverage of this ongoing story (“Does The Palace Guard Have No Clothes?“).

Larry highlights the need for Congress to address the inherent conflicts embedded in a self-regulatory organization (SRO) overseeing Wall Street.

Kudos, Larry!!!!

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I have written extensively about FINRA’s ownership of Auction Rate Securities over the last few months. This morning Bloomberg reports, FINRA Oversees Auction-Rate Arbitrations After Exiting Market.

This Bloomberg article (I am humbled by Bloomberg quoting me in the story) answers a number of questions I have raised, while also opening the door to other issues needing to be addressed:

1. Was FINRA blinded – if not totally conflicted – in addressing the trading, selling, and marketing of Auction Rate Securities? Try 862 million times.

2. Was FINRA lucky, prescient, or well informed in the timing of the sale of their own Auction Rate Securities? We may never know but given that their first “guidance for investors” was not published until after the market had totally frozen, they certainly did not provide much investor protection as is their mandate.

3. I have also written, and Bloomberg highlights, that FINRA had money invested in hedge funds. In light of market developments, I think the public has a right to know which hedge funds. Will FINRA release that information?

4. I unearthed all the information of FINRA’s investment activities from its 2007 Annual Report published in April 2008. I am still waiting for FINRA to release its 2008 Annual Report and wonder why it seems to be delayed.

5. As we move forward with likely regulatory changes for Wall Street, I believe the very nature of a self-regulatory organization funded by the banks it is charged to oversee presents massive conflicts of interest. This specific situation of FINRA’s investment in ARS is indicative of those conflicts. Will Congress have the courage to address these conflicts and serve the public interest in the process?

“To me it smacks of incompetence and negligence,” said Larry Doyle, who worked 23 years on Wall Street and runs a Web site called Sense on Cents. “Finra is supposed to police the market.”

I view FINRA as akin to the palace guard. The question remains, Does The Palace Guard Have No Clothes?

LD

  • Ellen D

    a self-regulatory organization funded by the banks

    Why sure, that concept has worked so well before. I am amazed at the people I deal with who have no clue what “conflict of interest” means. It should be taught in school. I even had to chew out my dentist for that when he was touting a product that HE was selling.
    That was taking a chance – since he had a drill in his hand. I had Marathon Man flashbacks.

  • FrenchNail

    Until I got caught (still is in some measure) in the ARPS freeze I had no idea of what FINRA and all the other players were. Since then I got myself a good education and cannot believe what I uncovered and is still uncovering everyday.

    The level of arrogance and incompetence evidenced among those players is unbelievable. But most importantly is their belief that all that noise is just a tempest in a tea cup, and that if they hold the barbarians at the gate long enough, everything will be fine and that all that turmoil would have been just an inconvenient but benign case of hiccups.

    To believe that those players, thru their staff are ready to change their ways and make amend is ludicrous. At this point, they are still content to be furious about the demands of accountability that “commoner” public is making.

    They live in a different world where letters of nobility are given by deans of Business Schools. They are convinced to be the New World Order oligraphy and they are not about to let their ivory towers stormed by the ordinaries.

  • Linda Anselmi

    Bravo LD.

    May this be only the beginning – of references to Larry Doyle and your Sense on Cents blog in Bloomberg and other news outlets, AND of further scrutiny to FINRA.

    Thanks for always keeping us informed.

    • Linda Anselmi

      – and helping us get educated on financials.

      – and leading the investigative charge.

      Looking forward to future posts.

  • TeakwoodKite

    Bravo LD. Keep on truckin!

    Thanks for the priceless education.

  • Patience

    The economy has gotten worse and it seems there isn’t much effort being put into fixing the problems responsible for it. We still have a terrible credit crisis that’s putting people and businesses out of work every single day. This administration claims it’s an agent of change yet the FINRA story is but one example of the false promise of a new and better way of governing. How much wealth has to be wiped out before something truly changes for the better?

    I agree with Larry — we’re witnessing negligence and incompetence. I would add laziness and hypocrisy. Some very important problems require triage but the protocol so far is “take two aspirin and call me in the morning”.

  • CG

    thanks to you, LD, there is at least a determined and fully-clothed inquisitor at the palace gate…

    It certainly is appreciated that the media outlets finally took notice of your questions and writing, better late than never, too bad it wasn’t sooner!

    Congratulations!!

  • http://www.senseoncents.com Larry Doyle

    I want to thank Larry, Susan, and everybody at NQ for your support and kind words.

    It is a true pleasure being connected to NQ.

    LD