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Oct 2, 2009 4:18 PM, By Bill Singer

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The Financial Industry Regulatory Authority (FINRA) issued an 80 page report on Friday that includes a review of its failings in the Madoff and Stanford scandals. A release about the report reads as follows:

“As the findings have concluded, a number of key points are apparent. First, FINRA must institute a number of internal reforms to better safeguard investors and the broader financial system. Second, the report calls attention to the many regulatory challenges related to jurisdictional issues and product definitions. Finally, the review points to the urgent need for financial regulatory reform that ensures comprehensive oversight, reduces jurisdictional confusion, streamlines enforcement and improves coordination and communication among all regulators.”

“FINRA has already taken many steps to improve its examination and fraud detection capabilities since these scandals happened. One major initiative FINRA is announcing today is the creation of a new Office of Fraud Detection and Market Intelligence. This office will provide rapid response to fraud by a staff with expertise in fraud detection and investigation.”

My reaction to the above? Well, I can pretty much encapsulate that into a few choice words. Self-serving garbage. Nonsense. Disgraceful. On December 12, 2008, when I was among the very first to point an accusatory finger at FINRA for the then unwinding Madoff scandal, a number of folks said that I was way off base. They said that FINRA had no jurisdiction, no knowledge, and that I was being “unfair.” In March 2009, I sent another letter to FINRA, seeking a meeting to discuss my ideas for reforming the ineffective self-regulatory organization. I never got the courtesy of a reply.

Finally, what kind of Report did FINRA's Special Committee author? I see no reference to any meetings or interviews with any prominent FINRA critics. How could that be? What I do see is that the "Board Advisors to the Committee" were Marie Buechner, W. Dennis Ferguson, and G. Donald Steel. Ms. Buechner's nomination by FINRA as its Board Candidate met with opposition from three separate petition candidates in 2008. In 2007, both G.Donald Steel and W. Dennis Ferguson were FINRA nominated Board Candidates who were opposed by a number of petition candidates.

Seems to me, that if you're going to make an effort to produce a truly unbiased report, that you have to recognize the troubling nature of designating as Board Advisors three folks whose nominations by the FINRA Nominating Committee was found to be so unpopular as to engender grassroots opposition candidates and cause historic contested elections. That's not to say that those three Board Advisors should not have been appointed to the Special Review Committee; but it does mean that if you are concerned about appearances and want to get to the heart of the matter, you should also have brought outsiders on board.

Finally, there is the question of naming names. I cannot for the life of me find the name of a single high-level NASD or FINRA executive that the Special Committee believes was negligent, should be held accountable, and severely reprimanded. I see no recommendation to fire anyone. I guess that they just want to reshuffle the deck. Keep the same cards but let's change some names and create yet more departments.

What is lacking in this report is what is always lacking in these types of reports. A simple recognition that there was a systemic failure at NASD and FINRA, and that the failure is largely attributable to a culture of bureaucracy and cronyism that will perpetuate itself. If heads don't roll and wholesale reforms are not enacted, you are ensuring the return of the same malfeasance and nonfeasance cited in the report.