He wears his heart on his sleeve and is not hesitant to let you know exactly where he stands on the issues of the day. That said, what are his passions? His family above all else. His faith. He has no problem critiquing our Roman Catholic hierarchy while practicing his faith and allegiance to the principles of Christ. Irish history. To hear him talk about the brutal treatment of the Irish at the hands of the English is a lesson worth learning. Red Sox baseball. I will admit my Dad is a fatalist when it comes to our Olde Towne Team but I got my wish that the Sox win a World Series before my Dad passed. The fact that they won twice, 2004 and 2007, is pure gravy. His golf game. Listening to him critique his short game is priceless. Another great passion is politics.  

My Dad and his family grew up out of the Depression and political power was everything to the Boston Irish. Gaining control of City Hall provided access to jobs and a path to a better life. While I have my own passions, I do not share my Dad’s passion for politics. Why? As with almost everything in life, politics is about the people. While clearly our political process and political systems are critically important to our current and future well-being, I have little regard for the political crowds in general. Why do I raise this topic? We need look no farther than the state of our nation as we enter the fall 2010 election cycle. Are our national interests truly being served? Let’s navigate further. 

I reflected upon my feelings in reviewing an article in this morning’s Financial Times, Obama Mired in Surreal US Politics,      

With friends like Michael Bennet, the embattled Democratic senator for Colorado, President Barack Obama has no need for enemies. Having this week submitted a set of proposals designed to wrong-foot the Republicans ahead of what is widely forecast to be a Democratic defeat in November, Mr Obama was himself instantly wrong-footed by somebody who is supposedly on his own team.

Mr Bennet, who relied on robust White House support throughout the summer to win the Democratic nomination in a tightly fought primary race, derided Mr Obama’s initiatives. To rub salt into the wound, Mr Bennet described Mr Obama’s proposals, which include $50bn in infrastructure investment and tax breaks to encourage higher investment by ­businesses, as a “second stimulus”.

So toxic has any hint of new public spending become that the White House, which was careful to ensure that Mr Obama’s proposals were self-funding, has essentially banned any use of the word “stimulus”. Mr Bennet apparently did not receive the memo. “We must make a hard choice to significantly reduce the deficit,” said Mr Bennet in a statement on Wednesday evening.

“I will not support any additional spending in a second stimulus package.”

The latest setback to what friends of Mr Obama privately fear is turning into a prematurely lame- duck administration, illustrates the increasingly Alice-in-Wonderland quality to American politics ahead of the midterm elections. Mr Obama’s proposals were taken directly out of the handbook of the main pro-business lobbies in Washington and were designed to appeal to mainstream Republicans.

Alice-in-Wonderland? Really. How pathetic. How about a heavy dose of truth, transparency, and integrity instead. Give me some of that and perhaps my political interests will be stoked. 

I personally feel that our politicians on both sides of the aisle have done our nation a disservice. How so? While they pursue their agendas, they provide very little real transparency to the real facts and details that impact everyday Americans. The Republicans are no better than the Democrats. In fact, in regard to the Financial Regulatory Reform package, I would say the Republicans were far worse than the Democrats in impeding the pursuit of real transparency.  

Are our public servants truly serving or have they become so mired in personal agendas and personal career advancement that they are blinded if not actually compromised along the way? I believe they are blinded and compromised. President Obama included.

What’s the result? Two things

1. Poliitcal gridlock with an increasing likelihood of lameduck status for Obama.

2. My political conversations with my Dad are exceptionally brief. 

Larry Doyle      

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

I can only imagine the wailing and gnashing of teeth by Raymond James managers as the firm loses another auction-rate securities ruling. Do you think Ray Jay’s managers are privately cursing out their own legal teams and the judges handing down some recent rulings against the firm? Major developments are breaking in the world of auction-rate securities, and the actions center on Raymond James. Let’s revisit a story I highlighted in late August.

At that time, I wrote Raymond James Taking Center Stage in ARS Tragedy:

Although the entire financial industry would clearly hope it could wake up from the nightmare known as auction-rate securities, the fact is this ongoing saga is no bad dream but a very real tragedy. Which player seems to be taking center stage in this ongoing epic disaster? Enter stage right, Raymond James.

A month ago, we witnessed in a WSJ review, Raymond James Ordered to Buy Back Auction-Rate Securities:

An arbitration panel ordered two units of Raymond James Financial Inc. to buy back $2.5 million in auction-rate securities from an investor.

Aside from the award, the most interesting element of this ‘act’ is the fact that:

Raymond James was still advising him to buy auction-rate securities into February 2008, when the auction market froze, and made one purchase the day after that occurred, Mr. Merdinger alleged. The market for auction-rate securities remains frozen, leaving many investors stranded.

Copies of emails that were considered during the proceeding allegedly showed that Raymond James financial managers knew there were problems in the auction-rate market well before it failed, according to Lawrence Byrne, a securities lawyer in Chicago who represented the investor.

Smoking gun perhaps? What exactly are in those e-mails? Think a whole host of other auction-rate securities holders might like to know? You think? Did those e-mails play a role in another Raymond James led auction-rate performance? When the curtain rose yesterday, the WSJ “reviewed” a similar play but with a twist entitled, Raymond James Forced to Buy Back Securities:

Raymond James & Associates Inc. and one of its brokers must buy back $925,000 in auction-rate securities from a Texas-based couple, a securities arbitration panel has ruled.

Were these individual cases truly nothing more than off-Broadway one act plays setting the stage for a Broadway blockbuster presentation?

Well, stay tuned as it appears that the smaller productions have, in fact, laid the groundwork for a potential major hit. How so? Can you say class-action? Thank you to a regular reader of Sense on Cents for sharing a Bloomberg BusinessWeek story, Raymond James Auction-Rate Lawsuit Is First to Be Upheld:

Raymond James & Associates must face a lawsuit claiming it defrauded buyers of auction-rate securities, the first class-action complaint over the instruments to be upheld in the wake of the market’s collapse.

At least 19 underwriters and broker-dealers were sued in class-action, or group, suits since the $330 billion market for auction-rate securities cratered in February 2008. At least eight financial firms, including Citigroup Inc. and Deutsche Bank AG, got complaints tossed when judges ruled they didn’t meet pleading requirements. In some cases, the investors were allowed to refile complaints with more detail.

U.S. District Judge Lewis A. Kaplan in New York upheld part of the complaint against the unit of St. Petersburg, Florida- based regional brokerage Raymond James Financial Inc., allowing the case to move to the discovery, or evidence-gathering, stage.

“A trier of fact would be entitled to find that it would have been important to a reasonable investor, in deciding whether to buy or sell ARS, that the ARS — supposedly liquid investments — were liquid only because auction brokers routinely intervened in the auctions to ensure their success,” Kaplan wrote in his Sept. 2 opinion. “RJA was under a duty to disclose this information.”

Kaplan tossed an earlier complaint in the case.

Was Raymond James doing anything differently than any other bank or money manager? Not from stories and reviews that I have seen. That said, two wrongs never make a right. Raymond James and every other entity engaged in the marketing and distribution of auction-rate securities should be compelled to offer sworn testimony in the process of providing full disclosures and total transparency. America needs more judges who will make that call, pursue the total truth, and allow justice to be served. Transparency and disclosures are the great truth serums. Raymond James specifically and Wall Street at large need to appreciate that.

Larry Doyle

Related Sense on Cents Commentary
Sense on Cents/Raymond James
Sense on Cents/Auction-Rate Securities

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Fall 2008 brought us absolute shock, awe, and disbelief as the markets careened lower and the economy suffered a ‘heart attack.’

Throughout 2009, the shock wears off and America’s rage burns as people become fully aware that the banks, our regulators, and ultimately our government all failed us. While there are those on both sides of the aisle who would malign the opposition, the fact is both Democrats and Republicans are guilty of not properly defending the American citizenry against the plundering of our financial system. I captured this sense of rage in two specific commentaries:

“Reflections and Outrage” by Bob Rodriguez, June 1, 2009 and What’s Fueling America’s Rage?, November 20, 2009

In the latter I wrote:

I do believe, however, that the rage sweeping our country on both sides of the political aisle stems from the reality that Americans are increasingly convinced that our political representatives, government officials, financial leaders, and their selected constituents have not been honest with America.

This lack of integrity and its growing level of awareness enrages Americans. They are voicing their rage. Congress is starting to hear this rage and is redirecting the anger and frustration toward leaders in Washington, state capitols, and Wall Street. We are now seeing this reality each and every day. America knows a lack of integrity when it sees it or feels it, despite the fact that large swaths of our media (exceptions include Susan Antilla and Jonathan Weil of Bloomberg, to name a few) provide the establishment cover.

Even though there remain a multitude of reasons for Americans to remain enraged, I believe to a very large extent we have now moved to the third stage of our human crisis. What form of behavior exemplifies this phase of our crisis? Resignation.

Americans strike me as caring less about the political and economic realities of the day.

Unemployment report last Friday? Can we trust the report and the reporters?

Presidential polls and politics? Do we have to?

The daily swings of the market? Why bother?

Americans’ sense of betrayal will evoke spurts of outrage because the betrayal was so vicious; however, those pangs of anger and rage have passed only because they took so much energy to maintain. While life does go on, we need to go on along with it. I am not writing this commentary based on my personal feelings. Rest assured, Sense on Cents is determined as ever to “keep punchin’” for truth, transparency, and integrity. I just do not sense that America has the same energy.

Thoughts, comments, questions always encouraged and appreciated.

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

In late July, I questioned the integrity of the European Bank Stress Tests and wrote, Will European Bank Stress Tests Be “Garbage In, Garbage Out?”:

All eyes will turn toward Europe this afternoon for the much anticipated release of the Euro-style Bank Stress Tests. Those who truly embrace real ’sense on cents’ know that the process and the data are far more important than the actual results. Why is that? If these tests are charades or nothing more than ‘garbage in,’ then the results will most assuredly be ‘garbage out.’

Well, while gullible investors and government officials worldwide may not care to know the real state of the European banks, those of us who truly treasure ’sense on cents’ are not surprised to now see European financial sewage streaming across the newswire.

We did not have to wait all that long to learn from The Wall Street Journal, Europe’s Bank Stress Tests Minimized Debt Risk:

Europe’s recent “stress tests” of the strength of major banks understated some lenders’ holdings of potentially risky government debt, a Wall Street Journal analysis shows.

As part of the tests, 91 of Europe’s largest banks were required to reveal how much government debt from European countries they held on their balance sheets. Regulators said the figures showed banks’ total holdings of that debt as of March 31.

At the time, worries about banks’ government-debt holdings were fanning fears about the health of Europe’s banking system as a whole. Release of the bank data was considered the main benefit of the stress tests, which were widely criticized as being lenient overall.

An examination of the banks’ disclosures indicates that some banks didn’t provide as comprehensive a picture of their government-debt holdings as regulators claimed. Some banks excluded certain bonds, and many reduced the sums to account for “short” positions they held—facts that neither regulators nor most banks disclosed when the test results were published in late July.

Because of the limited nature of most banks’ disclosures, it is impossible to gauge the number of banks that excluded portions of their sovereign portfolios from their disclosures, or the overall effect of that practice.

But the exposure to government debt of at least some banks, such as Barclays PLC and Crédit Agricole SA, was reduced by a significant amount, according to industry officials and financial filings made by the banks. Adding to the haziness, the stress tests’ reported sovereign-debt levels differed, sometimes widely, from other international tallies and from some banks’ own financial statements.

The findings undermine a primary goal of the stress tests—namely, to reassure investors and bankers world-wide the soundness of Europe’s financial system. “That would certainly be unhelpful to people’s perceptions” of the tests’ credibility, said UBS banking analyst Alastair Ryan. Reducing banks’ reported holdings of government debt “was clearly helpful for the thing [regulators] were trying to achieve: convincing you that there’s not a problem.”

Representatives of several banks said they were simply following the guidance provided by the Committee of European Banking Supervisors, the London-based group that coordinated the tests. A CEBS spokeswoman declined to comment.

Simply following the guidance? Oh, is that how this works? Where might they have learned that trick? Can anybody say Tim Geithner? Anybody, anybody,…Bueller?

Garbage in, garbage out!!

Call me cynical if you want, but I have this soft spot in my heart for a little item known as the truth.

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

I have been looking forward to this day for the last nine months. While I truly enjoy the spirit of college football in general, my real passion is following and supporting my Alma Mater, the Holy Cross Crusaders. This afternoon the 2010 Crusader contingent will kickoff its defense of the 2009 Patriot League Championship versus the Howard University Bison.

What makes Holy Cross Football such a special experience for me? A number of reasons including:

1. Quality time spent with my family, especially my 11 year old son Timmy. The drives to the games talking strategy are great memories unto themselves (although Timmy will ultimately choose to watch a video or play a game), the time together both going to and coming home from the game is priceless.

2. Seeing our children who are students at Holy Cross. Our eldest son is a senior and has worked with the Holy Cross football team for the last few years. He is even more passionate about Holy Cross athletics, and especially football, than I am. In fact, he has a blog in which he writes about Holy Cross Football. I am biased, but he is an excellent writer. Check out his work at Chu Chu Rah Rah. Our daughter is a junior at Holy Cross, and equally passionate about the program as the boys. We will miss her at the games this year as she is studying abroad in Ireland. My better two thirds, probably seven-eighths, loves seeing the kids and knows I am only half kidding when I say, “Holy Cross Football is what we really live for, the stuff that happens during the week is merely a diversion.”

3. Holy Cross has the finest collegiate football coach in the country. I have had the good fortune of developing a nice relationship with Tom Gilmore, who is entering his seventh year coaching the Crusaders. If Tom were not coaching football, I have no doubt he would be leading a wildly successful corporation. His passion, his discipline, his vision, his work ethic, and his dynamic personality are all infectious. I have never come across an individual who wants to win more while accentuating the true essence of student-athletes than Coach Gilmore. Holy Cross is lucky to have him, and I love seeing him put this product on display every fall. I chair the Holy Cross Gridiron Leadership Council which is an alumni group that strives to help Holy Cross Football win ‘on and off the field.’ The HCGLC is driven to help elevate the Holy Cross Football ‘product’ into the best in class ‘brand.’

4. The relationships with friends, extended family, players, players’ parents, and other alums are all fabulous. The common bond of Holy Cross Football is very strong. Alumni support for the program and players is extraordinary. The aforementioned HCGLC has a spectacular Mentoring Program which has grown from its initial launch last year and now consists of 115 alums from 25 states and 20 distinct industries. The impact of this program is opening doors and changing lives of the young men at Holy Cross. In true Jesuit fashion, while the mentors give their guidance and wisdom to the HC football student-athletes, they receive their youthful spirit in return. So great!!

I could write a lot more on why this segment of my life is so special, but I will leave it there.

Now, let’s go get a win. My prediction for today….

Holy Cross Crusaders 35
Howard University Bison 17

Larry Doyle HC ‘83

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Overall, annual premiums for families reached an average of $13,770 this year, up 114% since 2000.

Will Obamacare address and mitigate the underlying forces driving this increase? Honestly, I am not optimistic. I view Obamacare as nothing more than another of the redistribution and rationing programs in which those who can pay will absorb the costs for those who can’t. But how are these increases truly being absorbed? To an ever increasing extent, the cost of healthcare is being shifted from the employer to the employees. The WSJ further highlights this reality in writing:

Employers passed health-insurance costs onto employees at a sharply higher rate this year, and businesses’ premiums grew more slowly than they have in a decade, according to an annual survey of companies.

The increased cost-shifting reflected an acceleration of a trend that has been on the rise for years. As companies struggle to cut costs amid difficult economic times, more of them are reducing benefits they offer workers or making workers pay more for them. Still, companies are paying nearly three-quarters of workers’ health-care premiums.

Employees paid an average of about $4,000 toward their family coverage this year, up 14% from last year, according to a report by the Kaiser Family Foundation and the Health Research and Educational Trust. But total insurance premiums paid by the employer and the employee rose just 3% for a family plan—the slowest rate of growth in 10 years, according to the data.

The nonprofit research groups surveyed about 2,000 large and small companies between January and May.

“It’s the first time I can remember when employers have coped with costs by shifting it all to workers,” said Drew Altman, the Kaiser Family Foundation’s president and chief executive.

The survey showed workers with family plans are now paying 30% of their premiums, compared with 27% last year and 26% five years ago.

Businesses explained the shift by pointing to stark choices between cutting staff and reducing benefits.

“It’s no surprise, since businesses are struggling to keep their doors open,” said James Gelfand, director of health policy at the U.S. Chamber of Commerce. “The premium increase may have been modest but it’s still a premium increase and businesses can’t absorb those costs.”

As the increased costs are shifted to employees, what is the knock on economic impact? There is no doubt that discretionary consumer spending will suffer a further drag. That reality is nothing more than Principles of Economics 101.

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

There is no doubt that the development of the internet and a wide array of websites has led to a significant increase in the amount and quality of information accessed and processed by many. That said, there is also no doubt that there is an equally aggressive, if not public, effort to protect information, privileged or otherwise. Industry and company specific trade secrets can often be the key to developing and maintaining a hard earned competitive edge in the marketplace. I fully support and appreciate those ’secrets.’ On the other side of this coin, though, there are ’secrets’ which can often be the key to unlocking bad practices, if not much worse.

On this note, after a day’s worth of travel yesterday, I was particularly intrigued to read the Financial Times’ Probe Chief to Issue Wall Street Data. A few comments. Why is it that the FT’s electronic delivery entitles this article as such, while the hard copy entitled it, Probe Chief to Issue ‘Secret’ Wall Street Data? That one little word, ’secret,’ is exceptionally powerful. What is Wall Street hiding? Why are they hiding it? Who specifically is hiding it? Do the secrets entail illicit and fraudulent activities? So many questions.

Sense on Cents has been asking these questions of Wall Street in general and our financial regulators specifically for a long time. Let’s navigate further into the Financial Times’ article:

Wall Street groups face the disclosure of internal documents that could provide a treasure trove for would-be litigants and a headache for banks, regulators and their lawyers.

Phil Angelides, Financial Crisis Inquiry Commission chairman, said he planned to publish a large amount of background data when he delivered the commission’s final report in December to allow further scrutiny by academics and journalists. “It’s not just banks, I might say that there are a lot of government agencies that want to keep all their documents secret and my view is if they add to the knowledge of the crisis I lean towards disclosure,” he said.

Hey now!!! That’s what I’m talking about.

Finally, somebody in a position to provide some real transparency and disclosures has woken up and smelled the coffee. Which government agencies? The SEC, perhaps? How about its sidekick, Wall Street’s self-regulator, the Financial Industry Regulatory Authority, FINRA? Sense on Cents has been asking FINRA specifically to open its books and records for a year and a half.

Don’t tease us, Phil. Deliver the goods!!!

The commission – set up by Congress to study the crisis and given sweeping legal authority – has used subpoena powers to compel Goldman Sachs to release documents and to force Warren Buffett, the chairman of Berkshire Hathaway, to testify.

But it is in a race against time to obtain additional information from Wall Street and complete its work before its deadline. “Sometimes it’s fair to say we’re getting the ‘slow walk’. They’re probably looking at December 15 and saying ‘we’ve got 100 days to go until these guys are gone’,” said Mr Angelides.

‘Slow walk?’ If that is the case, you have the power of the subpoena, then go ahead and use it. America deserves answers. Your mandate is to provide them.

When the Financial Crisis Inquiry Commission was launched, Mr. Angelides’ right hand man, Bill Thomas, publicly solicited information and provided his e-mail address. I took him up on it and sent the following:

billthomasfcic@gov.com
Fri, Jan 29, 2010 8:22 pm

Bill,

I would like to submit to you the following links which encompass a number of allegations of serious improprieties at FINRA. Would welcome speaking with you or anybody on the commission about this material.

America deserves to have these issues addressed.
Attorney Claims Wall Street’s Cop, FINRA, Invested in Madoff

and this as well
How Big Was Mary Schapiro’s Lie

Respectfully,
Larry Doyle
http://www.senseoncents.com/about/

I fully appreciate the points I raise are very serious. Regular readers of Sense on Cents are aware that I ask the hard questions for the very simple reason that I strongly believe greater transparency and disclosures will help restore badly needed investor confidence and investor protection. The core of these questions are also embodied in proxy proposals recently passed by an overwhelming margin of FINRA’s member firms.

Don’t tease us Phil!! Deliver the goods!! America deserves answers and real transparency. Your legacy is on the line here.

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

]]> http://www.senseoncents.com/2010/09/afternoon-cartoon/feed/ 0 http://www.senseoncents.com/2010/09/jp-morgan-shuts-proprietary-trading/ http://www.senseoncents.com/2010/09/jp-morgan-shuts-proprietary-trading/#comments Wed, 01 Sep 2010 09:11:52 +0000 Larry Doyle http://www.senseoncents.com/?p=22157 Two weeks ago on an afternoon visit to New York City, I was struck by the changed tone, atmosphere, and demeanor during the meetings I had with a number of Wall Street professionals. The fact that the tone has changed does not necessarily mean that the industry as a whole is entirely chastened by the failings—if not worse—both going into and coming out of the crisis. Without deeply meaningful efforts and accompanying results to promote real transparency and increased disclosures, the industry will continue to fight to maintain ‘business as usual.’ It is an uphill battle.

Further evidence of this reality is provided today with the news that JP Morgan is shutting down its proprietary trading operations. Bloomberg reports, JP Morgan Said to End Proprietary Trading to Meet Volcker Rule:

JPMorgan Chase & Co. told traders who bet on commodities for the firm’s account that their unit will be closed as the company, the second-biggest U.S. bank by assets, starts to shut down all proprietary trading, according to a person briefed on the matter.

The bank eventually will close all in-house trading to comply with new U.S. curbs on investment banks, said the person, who asked not to be identified because New York-based JPMorgan’s decision hasn’t been made public.

Closing the proprietary trading desk for commodities affects fewer than 20 traders, one in the U.S. and the rest in the U.K., the person said. The unit is based in London, and traders there were given notice on Aug. 27 that their jobs were at risk as required by U.K. law, according to the person. Proprietary traders in fixed-income and equities, who account for 50 to 75 employees, will need to find jobs when those desks are shut down, this person said.

What are the implications of this move? For JP Morgan, lessened revenues. Too bad. I have  little sympathy. For the employees, obviously lost jobs. The more talented traders and dealmakers will likely land at hedge funds. The lesser talented will likely have a tougher time finding employment. I do sympathize. For the market as a whole, this trend toward lessened — if not fully eliminated — proprietary activity has significant implications. Such as? Prop trading has traditionally been some of the most active trading in the market. With prop trading gone, overall trading volumes will decline. This is all part and parcel of the ongoing deleveraging process. While banks may whine about lessened credit availability to customers, the fact is prop trading had little to do with credit availability. In fact, the elimination of prop trading should allow capital to be redirected toward greater credit availability. Prop traders may whine about higher transaction costs for customers in light of lessened volumes. My response is that if the regulators were truly concerned about transaction costs (bid-ask spreads) and capable of effecting change, all they really need to do is bring real transparency and disclosures into the process.

Information is everything.

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

Where is the general media and the financial media on this story? Is anybody home??

“TRUTH, TRANSPARENCY AND ACCOUNTABILITY INITIATIVE” PASSED BY MEMBERS AT ANNUAL MEETING

FINRA’s Board of Governors Should Act at September 20 Meeting

Led by a decorated former U.S. Army Green Beret and Iraqi War combat veteran who heads a small securities firm, member broker-dealers of the Financial Industry Regulatory Authority (FINRA) decisively overrode management opposition to approve proxy proposals to investigate alleged corporate wrongdoing and substantially reform governance at the Wall Street self-regulatory organization.

In an extraordinary repudiation of a securities industry self-regulator, at the August 12th Annual Meeting two-thirds or more of FINRA members approved these seven common sense reforms many of which similar organizations have in-place:

*  Compensation for FINRA’s top ten most highly paid employees should be reported regularly in the annual report (83 percent support);

* Management’s relationships with Bernie Madoff and his family should be independently investigated (68 percent support);
FINRA investment transactions should be disclosed to members and the public (76 percent support);

* FINRA Board of Governors meetings should be held in the “sunshine” open to the public (77 percent support);

*  Members should have a “say on pay” for the top five compensated FINRA employees (72 percent supported);

* An independent private inspector general for FINRA should be appointed (67 percent support);

* All IRS correspondence on management’s demonstrably false claims of a $35,000 ceiling on payments to NASD members related to its merger with NYSE to form FINRA should be released (70 percent supported).

“No objective observer can look at the performance of FINRA over the last few years and characterize it as an effective regulator or being operated in its members’ best interest,” wrote Lt. Col. Elton Johnson, Jr. (U.S. Army Reserve), a decorated Iraqi War veteran who is president of Amerivet Securities, Incorporated (Amerivet) of Moreno Valley, California.  Lt. Col. Johnson, who put forward the reform proposals collectively known as the “Truth, Transparency and Accountability initiative,” is currently on active duty assigned to the Combined Forces, Special Operations Command in Southwest Asia and was unable to attend the annual meeting.

In his July 29 letter to all other FINRA members urging them to approve the reforms, Lt. Col. Johnson said:

“FINRA pays its executives gigantic salaries out of our dues and Members’ Equity and has been asleep while major financial fraud has taken place on Wall Street . . . [and] is now looking out for the interests of its largest members and overcompensated, well entrenched executives (including former CEO Mary Schapiro who appears to have received from FINRA’s Board a ‘going away present’ reportedly in the neighborhood  of  $10 million), at the cost of small firms all over the country.”

Overwhelming member support of the proxy proposals reflects growing concerns that FINRA’s managers have been operating behind closed doors to benefit its most powerful members and staff at the expense of its broader membership and its role as a protector of the investing public.  Lt. Col. Johnson, whose repeated requests for access to FINRA’s books and records (to which he is entitled under governing corporate law) were denied by management, filed a lawsuit August 10, 2009 seeking access to FINRA’s records.  He believes the record will show that the leaders of FINRA and its predecessor (NASD) engaged in corporate wrongdoing, breached their fiduciary duties and may have violated laws as well as the public trust.  His lawsuit seeks no money.

Lt. Col. Johnson, who received a Bronze Star Medal and has another pending, is a former U.S. Army Green Beret who has completed two tours in Iraq and is currently deployed in Southwest Asia for the third time.  He is represented in this matter by his attorneys Jonathan W. Cuneo and William H. Anderson of Cuneo Gilbert & LaDuca, LLP, and Richard D. Greenfield of Greenfield and Goodman, LLC.

“FINRA members have overwhelming spoken and now the Board of Governors must act,” said Jonathan Cuneo, an Amerivet attorney.  “As a self-regulatory organization, FINRA should be a leader in operational transparency and fully disclose its administrative practices and records to members and the investing public it was formed to protect.”

“Publicly-owned companies disclose material developments, financial policies and executive compensation in their annual reports and through other means on a timely basis,” Richard Greenfield, another Amerivet attorney explained.  “It poses no particular burden for FINRA to follow the transparency and disclosure practices of well-managed private corporations, and FINRA should begin doing so immediately.”

Yet, in an August 13 letter to its membership following the stunning proxy defeat, FINRA’s chairman and chief executive officer, Richard Ketchum, and lead governor, Richard Brueckner, said the proposals are non-binding, but would be reviewed by the Board of Governors beginning at its next meeting.  A FINRA Board of Governors meeting is scheduled for September 20.

Allegations of Management Wrongdoing and Self-enrichment

Many have questioned senior managers’ alleged close relations with the Madoff family  during the period in which “Bernie” Madoff was operating his multi-billion dollar Ponzi scheme that eluded FINRA’s notice.  Some FINRA members also question the propriety of FINRA’s purchases “behind closed doors” of hundreds of millions of dollars in securities for its own account from the broker-dealers it regulates.  In 2008, FINRA lost in excess of $565 million (or 26 percent of invested assets).  And, its transactions and investment policies remain largely hidden from its membership and the public.

During that same year in which FINRA, a regulatory organization, was losing half a billion dollars, its then chair/CEO Mary Schapiro was paid more than $3.2 million – a substantial increase over 2007 — according to FINRA’s federal tax returns.  Additionally, during 2008, eight other FINRA executives each received more than $1 million in compensation and benefits and, in total, the top twelve most compensated employees received more than $24.8 million.  Again, these compensation packages were given to senior executives during a year in which the self-regulator’s investments lost 26 percent of its total assets and members’ equity was badly depleted.

False Statements by NASD Managers about Transaction that Created FINRA

Among other troubling matters is the closing of the transaction that resulted in FINRA’s creation in which NASD members were paid $35,000 each.  NASD members were told in writing and at “roadshows” put on by senior NASD executives (including former NASD CEO Mary Schapiro) in 26 cities that $35,000 was the absolute limit on the payment to members for the merger and that the payment was limited to such amount by the IRS.

In fact, the IRS did not issue its opinion concerning the ceiling on such payments until months after the statements regarding the $35,000 limit were made by NASD management.  As disclosed in Court, the actual limit on the payment to NASD members was substantially higher than the false ceiling represented by NASD and its merger partner NYSE.  (For more, see documents produced in Standard Investment Chartered Inc. v. NASD, et al, Case No. 07-cv-2014) in the Southern District of New York in which the presiding judge was the Honorable Jed S. Rakoff.)

Clearly, NASD management’s statements to its members about the $35,000 compensation ceiling were false.  Interestingly, the results of the proxy vote concerning disclosure of IRS correspondence on this matter reveals an apparent division between FINRA’s largest members and smaller members.  While more than 70 percent of large member firms, such as Goldman Sachs and Morgan Stanley, oppose releasing the IRS correspondence, about 73 percent of small broker dealers and 50 percent of mid-size  firms support releasing the documents. Lt Col. Johnson and others believe FINRA’s management has been “in bed” with its largest members, to the detriment of smaller members and the investing public.

To Move Forward FINRA Should Reveal the Truth about its Past

“If FINRA is to move forward and put past mistakes behind it, members and the investing public must finally learn the whole truth about these $35,000 payments,” Attorney Cuneo said. “What do they have to hide?”

“To avoid the appearance of concealing facts and obstructionism on all the matters addressed by the members’ proxy votes, FINRA’s Board of Governors should immediately adopt the recommendations overwhelmingly approved by its membership,” Mr. Cuneo asserted.