The Financial Industry Regulatory Authority should be used to criticism by now, both from those who think the industry’s self-regulatory organization doesn’t go far enough in keeping bad brokers and Wall Street firms in check, to those who complain the authority wields an unholy power of destruction by over-burdening innocent and hardworking reps with cumbersome regulations and arbitrary enforcement.

The truth, according to Larry Doyle’s In Bed With Wall Street: The Conspiracy Crippling Our Global Economy, recently published by Palgrave Macmillan, is that both accusations are right, and then some. His book elevates and sharpens the case against Wall Street’s model of self-regulation.

At first glance, the book belongs on the shelf with dozens of others in the all-too-familiar genre of post-financial-crisis literature: Wall Street and Washington are joined at the hip; federal regulatory agencies share revolving doors with the investment banks and management firms they oversee; lobbyists ensure no substantive legal constraints ever check the greedy ambitions of the street. The only losers are retail investors. You’ve heard this story before.

But Doyle’s focus on FINRA makes his book a useful addition. Being a former mortgage trader himself (and still running an investment firm in Connecticut), he is not an anti-Wall Street muckraker. He argues FINRA protects the interest of the largest Wall Street firms at the expense of smaller broker/dealers who don’t have the relationships, staff, money or legal representation to sway the authority.

Doyle’s evidence will be familiar to long-time FINRA watchers (an unfortunately small group to begin with). In early 2008, FINRA failed to warn investors of dangers in the soon-to-implode auction rate securities market, even after it allegedly sold $650 million worth of the asset from its own coffers. Did FINRA’s investment committee, deep in the capital markets, have some foresight, and if so, wasn’t the organization bound by their mandate to warn investors?

Doyle shreds FINRA’s use of arbitration panels to adjudicate complaints between firms and investors as a “kangaroo court” stacked in favor of Wall Street. Enforcement actions, when dispensed, disproportionately hit smaller broker/dealers while larger firms get the equivalent of wrist slaps.

At times his indictment outstrips his proof. He revisits the accusation that FINRA’s balance sheet was partially invested in Bernard Madoff’s funds, perhaps influencing its view of the con artist when others were starting to question him. FINRA denies it. It’s true Madoff’s family had a long relationship with FINRA and its predecessor, the National Association of Securities Dealers (where Bernie was once vice chairman.) And FINRA at the time refused requests to review its books, despite the authority’s stated belief in transparency.

Doyle is most convincing when he points out how FINRA’s relative anonymity among retail investors and the mainstream press means it doesn’t get the scrutiny it deserves. Consider that pundits excoriated former SEC Chair Chris Cox for failure to police the investment industry after Wall Street’s implosion; incoming SEC Chair Mary Schapiro, who was the head of FINRA during the same period, issued unchallenged platitudes of transparency and accountability during congressional hearings. True, FINRA answers to the SEC, but few observers asked about her record as the top cop on Wall Street’s private police force. Under her watch, Doyle points out, penalties and fines meted out by FINRA dropped significantly. Yet she made $9 million in total compensation in 2008, a year when “investor interests” were anything but protected.

Too many in this industry dwell exclusively on compensation models and advisor incentives as differentiators, and they are important; but as long as money is invested in securities, regardless of the channel, all clients deserve an equal playing field. Doyle’s book underscores how regulators have failed to provide one.

David Armstrong

Editor-In-Chief