SEC Incompetency vs. FINRA Corruption

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An irreverent Wall Street Blogby Bill Singer
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Incompetency versus Corruption: Choose Wisely
Written: February 4, 2009

By Bill Singer
http://RRBDLaw.com
http://BrokeAndBroker.com

In his explosive testimony before the House Financial Services Subcommittee, Harry Markopolos details the frustration he faced in trying to alert the otherwise preoccupied Securities and Exchange Commission. This unheeded whistleblower is now blowing the top off of the long-kept and well-guarded secret that the regulation of Wall Street is less about vigilance and too often nothing more than shady office politics.  As the Associated Press' Marcy Gordon so perfectly captured in her story Lawmaker says SEC hindering House's Madoff probe

Because of the SEC's inaction, "I became fearful for the safety of my family," Markopolos said.
"The SEC is ... captive to the industry it regulates and is afraid" to bring big cases against prominent individuals, Markopolos said. The agency "roars like a lion and bites like a flea" and "is busy protecting the big financial predators from investors."
While the SEC is incompetent, the securities industry's self-policing organization, the Financial Industry Regulatory Authority, is "very corrupt," Markopolos charged. That organization was headed until December by Mary Schapiro, President Barack Obama's new SEC chief.
After all these years as a leading critic of Wall Street's failed regulatory system, it nearly brought tears to my eyes --if not vindication-- to finally see that someone else got it!  And how wonderfully Mr. Markopolos put it: Incompetency versus Corruption.  What a lovely choice that now faces the public and the industry.  We get to choose between what Markopolos describes as an incompetent SEC or a very corrupt FINRA.
Today, a few of you already reminded me that in September of last year I considered a very similar choice. I quoted Woody Allen's comment in my blog As Woody Allen Said in connection with another one of my diatribes against regulatory incompetence:

More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.
How sad and sordid it all has become. They wouldn't listen to Markopolos. They fired Gary Aquirre when he sought to aggressively do his job at the SEC. They wouldn't even interview me. And now we are left with a choice between incompetency or corruption. Geez.
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I watched Bloomberg TV just to see his testimony. It was quite interesting and sad at the same time. Although I suspected there always was a conflict of interest in the oversight efforts at both the SEC and FINRA, I never imagined it was so negligent and incompetent.

I expect things will change going forward. We need to restore confidence in a hurry.

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Skedaddy:
I trust that you and other forum members are more than familiar by now with my very, very longstanding criticisms of Wall Street's regualtory system and its regulators; and that, to some degree, my allegations are being vindicated by Markopolos' testimony and the events of recent months.  If anyone still harbors doubts about my views, please visit my blog at http://BrokeAndBroker.com or my website at http://RRBDLaw.com and read the many years of posted warnings.
Now that the sordid situation has been revealed, what the hell are we going to do about it?

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Any chance we'll be seeing you on CNBC, MSNBC, Fox News, etc. commenting on the issue? 
Seems like in today's climate, someone with some clout could really get their message heard...
 

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Actually, I've been making the rounds of radio and tv the last few weeks.  If you see my online resume, http://rrbdlaw.com/bios_singer.html you can note the appearances.  On the other hand, just as the "powers that be" controlled the airways to keep we voices of reform off the air when the current mess was merely brewing, I am confidant that those same powers will do their utmost to deflect our voices as the debate now goes more public. Frankly, the panels that the House and Senate committees have put together strongly suggest that this is all once again being orchestrated by conflicted politicos seeking to throw some red meat to the wolves rather than truly tackle the hard problems.  We're likely going to get lots of talking heads spouting off nonsense rather than folks who have worked in the industry, know what really goes on, and know what needs to be done and how to do it.
 
I'm still laughing at FINRA's approach to replacing Schapiro.  They've appointed a search committee but won't tell us who is on it and how they got selected.  I'm sure that we're not going to get anyone with sincere reform credentials, and it may well be some broken-down former regulator who sat by while this crisis got underway.
 
Don't expect too much change. About the best we'll likely get is a cosmetic whitewash.  Still...I love listening to Markopolos say it like it is.  Watching him was like watching the home-run derby during the All-Star game.  He's swinging for the fences and most of his shots are going out of the park!

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I'm not surprised AT ALL. You guys should check out Born to Steal. Gary Weiss (also author of Wall Street vs. America) makes the NASD look like total buffoons as Louis Pasciuto rips off investors in over 18 bucket shops and boiler rooms in about three years. Then there's the RR stories like the FL based broker (Gary Gross?) who only had 43 disclosures on his CRD before getting removed from the industry. Way to go FINRA! Check this guy out online...the U4 is almost 100 pages. You just have to laugh at some point.

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Bill, Here's a good one to add to your collection http://www.youtube.com/watch?v=YbeNO_H4GEg

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xbanker:
 
If you read Gary's book you will likely notice that it was my former law firm (Singer Frumento) that represented former NASD examiner Gilani in his lawsuit against the SRO.  Gilani is featured in the beginning of the book as the guy who tried to blow the whistle on Pasciuto's firm and later on the regulator itself. 
 
As far as laughing goes, I often quote Abraham Lincoln who said that he was too old to cry but it hurts too much to laugh.
 
Separately, for an interesting new take on the failures of the SEC and FINRA, see this article: http://www.brokeandbroker.com/index.php?a=blog&id=122
 
 

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Following up on xbankers' point, for those of you who think that Madoff is atypical of regulators disregarding tips and warnings, why not take this trip down memory lane:
 
http://www.businessweek.com/1996/51/b35068.htm
 
 

xbanker's picture
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Have you read The Wolf of Wall Street yet or by some other means acquired an opinion on Jordan Belfort's actions at Stratton Oakmont? He's been making the media rounds recently and ripping the regulators in a fairly amusing way.

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xbanker:
 
I have managed to read Belfort's book for free while flipping through it at Barnes & Noble.  While it is a somewhat accurate picture of the pennystock/boilerroom era, there is a certain sterility to the narrative that I believe derives from the fact that I just don't believe Belfort fully appreciate the lives that he destroyed and he still seems to harbor what I would call a delusion that he was a genius surrounded by idiots and incompetents (most of whom he hired).  Perhaps it's just me and my somewhat dated views of things.  If Chesley Sullenberger wrote the story of his life as a pilot, I'd be interested in reading it because he was a decent guy who did a magnificent job.  On the other hand, if some con artist want to make a buck writing about how he screwed the world (and many of his victims are still unpaid), I just can't bring myself to purchase that book.  Do I understand why others would? Of course. I also know that people log on to YouTube daily to watch beheadings and other assorted inhuman conduct. Whatever floats your boat but it's just a line that I draw.

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http://www.brokeandbroker.com/index.php?a=blog&id=123
 
 

An irreverent Wall Street Blogby Bill Singer
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The New Word for an Old Problem: NONFEASANCE
Written: February 6, 2009

Among the more common questions I am asked by the press and the public is whether the failings of Wall Street's regulators are a new phenomenon.  A lot of folks seem to want to cling to a belief that the disclosures of regulators' nonfeasance in the Madoff scandal are aberrational and of only recent vintage. You ask me (and many of you have) that's wishful thinking.
I like that word nonfeasance It pretty much encapsulates what I think is the core of the problem. As I use that term, it means a failure to do an act that is legally required. It perfectly embodies the sense of an official who intentionally looks the other way and refuses to do his or her job.
So...did many Wall Street regulators just start engaging in nonfeasance a few weeks ago? Did the looking the other way and not doing the job start with Bernie Madoff? For starters, let me send the curious among you to the 1996 Business Week article by Gary Weiss: Did the NASD Look the Other Way? http://www.businessweek.com/1996/51/b35068.htm  For a even more startling example of how regulators have avoided tackling the tough cases, read Weiss's acclaimed book: Born to Steal (Warner Books: 2003).  [By way of disclosure, my former law firm represented the ex-NASD examiner Gilani, who is prominently cited in Chapter 3.]
You read the magazine article and the book, and then you answer my question: Do you think that the regulatory culture that Weiss described has changed during the past 13 years? Do you think that the regulators modus operandi as depicted by Weiss may have invited, if not nurtured, the alleged Madoff crimes?  Assuming that you conclude, as I have, that nothing of substance has changed, then answer this one last chilling question: Do you see any proof that substantive, meaningful reforms are in the works?
I'll keep this blog uncharacteristically short.  I've made my points about these issues too often and for too many years.  Pathetic.

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