Finra messed up, what a shock

October 3, 2009

The report by Finra on its failure to detect the alleged Ponzi scheme at Allen Stanford’s offshore bank is no shock.

Finra makes the SEC look like an agressive regulator. And this should give anyone reason to pause when you consider that Mary Schaprio, the current Securities and Exchange Commission chairman, most recently headed-up Finra.

Schaprio tells us her mission is to beef-up the SEC’s enforcement procedures in the wake of its own failings on Stanford and more significantly its botched investigation–or non-investigation–of Bernard Madoff. Why didn’t she first do this when she was at Finra?

The report outling Finra’s missteps notes regulators failed to follow-up on claims made by former Stanford brokers that the CDs the firm’s offshore bank in Antigua was selling were either bogus or “too good to be true.” Going as far back as 2004, a number of brokers raised this claim in arbitration disputes they had with Stanford.

Late last year, after Madoff was arrested, I began investigating allegations that Stanford’s financial empire was a Ponzi scheme. I did this while I was still working at BusinessWeek and early on I came across a few arbitration cases in which brokers had alleged the returns Stanford CDs seemed too good to be true.

Soon after Stanford was charged by the SEC with civil fraud, a source pointed me to an old lawsuit filed in Florida state court where a former employee also claimed the operation was a Ponzi scheme.

All of of these legal filings were either in the public record or in Finra files, yet it appears the level of communication between Finra’s arbitration unit and its enforcement operation is poor. This has been a long standing complaint from brokers, investors and securities lawyers and it needs to be fixed.

The inability of one side of an organization to talk to another can be damaging to a business. It’s no less damaging for a regulatory agency. But when regulators don’t communicate, innocent investors get hurt.


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The problems run very much deeper than a lack of “one side communicating with the other” at FINRA. FINRA (the old NASD) is and has been, virtually since its inception, a lap dog and servant of the industry. Rarely does it take into account the interests of consumers. FINRA’s single mission is to increase profits for the large Broker Dealers and other securities “operatives” at the center of most of the mess our economy now suffers

Posted by J. D. Stinson | Report as abusive

Stanford had a very clever, but highly questionable, strategy. He would hire former NASD officials to become part of his broker dealer’s joke-of-a “Compliance” Department. In truth, they were nothing more than “fixers”. They would use their contacts and prior connections at FINRA to wave off possible inquiries into Stanford’s activities. Is it possible they may have been tipped off at times? Another part of Stanford’s strategy to appear clean was to insert some of his employees as members of compliance entities dealing with matters dealing with anti money laundering, ethical issues, etc.
Not a bad approach to appear clean, huh?

Posted by Former Stanford | Report as abusive

“(FINRA)failed to follow-up on claims made by former Stanford brokers that the CDs the firm’s offshore bank in Antigua was selling were either bogus or “too good to be true.”

This statement is misguided and brokers who alleged the CD’s were bogus had no knowledge of anything. If you read the NASD arbitrations, they were throwing everything but the kitchen sink into why they shouldn’t have to pay back prior loans. If you research it, I think you will find that several “whistleblowers” even had their own money at the Bank they called bogus. I’m sure the NASD (or FINRA) doesn’t run down every allegation made against firms by individuals. Should the SEC or FINRA figured out that a Bank with no real auditor, high rates, and limited investment officers that are smarter than the rest of the World was BOGUS? ABSOLUTELY, but it shouldn’t have to come from any uninformed “Whistleblowers”. Did Allen Stanford buy off members of the banking committee? Go back and look who contributed to people like Chris Dodd or Chuck Schumer and see whether Sir Allen tried his best to buy off the legislators. The whole business model of the bank was flawed – high CD rates with a hedge fund risk invested in a jurisdiction that had been corrupt for 30 years. Now we know they participated in the cover up and Sir Allen was running to St. Croix since Antigua had a new administration after the Bird family was voted out. Sir Allen is an arrogant individual that thought he could get away with anything and Jim Davis has told us he was a crook from the very beginning.

Posted by Former Stanford | Report as abusive

I am going through an absolute nightmare arbitration claim with FINRA, the Financial Industry Regulatory Authority. Paid for by the industry, for the industry. My hearing has been delayed time and time again. We had an arbitrator who had fraudulent degrees – a MA and PhD from a degree mill. I had to PUSH to get this guy off the panel– FINRA was going to let him stay as the chair — and to the best of my knowledge, he is still a FINRA arbitrator and chair! so, someone else could get him next… the respondent filed a retaliatory lawsuit against me – that was dismissed and he was sanctioned – but i spent tens of thousands of dollars fighting and wasted time with it. Check out my blog, to read my story. and what is wrong with mandatory arbitration clauses. and FINRA – this is the only place for relief for investors and associated persons. and it is completely industry driven and run. it’s shameful… it’s time for congress to take over finra and have real regulation of the financial services industry… the commercials they are running? a joke. i haven’t been able to get a job in 19 months because of this – and they want me to wait another 4-6 months to get my day in court.

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