As for Mr. Madoff we all have heard about the luxurious life style, the homes, etc. etc. Mr. Stanford used investor money to allow his bank to claim double-digit returns on its investments for the past 15 years. During that time, Mr. Stanford spent at least $5 million on lobbying and campaign contributions to a bipartisan group of congressional leaders, some of whom I am sure were from Texas. Money and politics; they go together like apple pie and vanilla ice cream.
FINRA issued a report today wherein it declared that it is "not adequately trained" to investigate cases like Madoff and Stanford. Blaming themselves for gross inadequacy, the report goes on to say that FIRA, along with the SEC, were negligent in not following up on tips received over a 16 year period. This means that when consumers like you and I call those whose role it is to listen to us and protect us, no one actually believes us. Maybe it's because we do not have lobbyists with money like they do in Texas.
So to solve this problem, FINRA will now create a new Office of Fraud Detection and Market Intelligence, to make sure that there will be people at the other end of the phone who are experts in fraud detection. The logic goes that this will now create an agency that can respond quickly to suspected scams. If that does not give you a warm and cozy feeling yet, maybe this will; "As regulators, we owe it to investors -- especially those harmed by recent scandals -- to develop a better, more comprehensive, response to fraud," FINRA CEO Richard Ketchum said in a recent statement. Furthermore, he also said, "I am committed to taking the lessons from the report's findings to make FINRA even stronger." OK Richard! Go Ketchum!
Here is a list of some of the tips, had they been taken seriously by the SEC and by FINRA, may have saved the day. Let me further add that this all comes from the aforementioned FINRA report recently published to the FINRA website. I urge you to read or peruse the 80 pages contained there, and here is the link:
Click Here For The FINRA Report
In 2006, FINRA examiners noticed Madoff was making payments to Cohmad Securities Corp., which was a front used by Madoff to show potential investors and regulators that in fact customer accounts were opened with the funds, when in actuality, the money was being filtered through Cohmad to Madoff directly. Here, had regulators asked for more documentation, the gig may have been up right there and then since the accounts had zero balances.
In 2007, FINRA staff uncovered commissions from a London affiliate but did not inquire further. Had they done so, it is conceivable that Madoff's money laundering would have been discovered.
In 2003, FINRA received an anonymous letter claiming Stanford's business a "massive Ponzi scheme that will destroy the life savings of many." Somehow this letter managed to vanish from sight until six years later when a member of FINRA's enforcement staff saw it. If that were not enough pain to absorb, upon discovering the letter, this staff member forwarded the letter to the SEC arguing that FINRA had no jurisdiction over the matter. It makes you wonder what kind of mindset we here in America are allowing to permeate the brains of those who claim to serve us? If there ever was a sense of urgency here it was, a claim six years old, and the FINRA investigator does nothing more than forward the letter. I guess it was not his job to do more.
From 2003 to 2005 the SEC examined the Madoff firm in response to complaints the firm was running an unregistered multi-billion dollar investment advisory business that operated as a Ponzi scheme. In January 2006 the SEC's Enforcement Division opened an investigation of the matter, which was later closed without formal action after assurances by the Madoff firm it would register as an investment adviser. The SEC never informed FINRA of the complaints, the investigation, or the resolution of the matter for FINRA to follow up.
On at least two occasions, FINRA handled complaints from former Stanford employees who claimed of being fired after refusing to sell these CD's. One of the former employees claimed that Stanford was targeting mostly unsophisticated investors in Latin America, and that bank assets were well below bank obligations. The report admits that nobody at FINRA ever followed up on these allegations.
Madoff at age 71 is serving a 150-year prison sentence. Stanford at age 59 faces 21 counts of fraud and conspiracy. Of course Mr. Stanford denies any wrongdoing and remains in a Texas jail awaiting his trial.
Conclusion:
The FINRA report claims the agency now wants to make amends and is prepared to institute a special panel to review FINRA's examination program. This panel is to include Charles Bowsher, U.S. comptroller general from 1981 to 1996, Harvey Goldschmid, a former SEC commissioner, Joel Seligman, president of the University of Rochester, and Ellyn Brown, Maryland's securities commissioner from 1987 to 1992. Well what a fine bunch they will be. I don't know about you, but I am feeling sooooooo much better already.
Lastly, FINRA is actually funded by Wall Street firms and is overseen by the SEC. What this all means is that now, much like what we all experience at Airports with excessive, sometimes over the top conduct by our civil servants hired to protect us but only make our lives that much more miserable, I as your investment advisor will have to now assuredly deal with more paperwork and red tape in our government's attempt to ketchum bfore they run.
If I can throw out one last comment, and here I apologize to my Southern friends and clients, but I can't help but notice the multitude of scams emanating in Southern red states like Texas. Haliburton, HoustonTexas. R. Allen Stanford, DallasTexas. Enron, Houston Texas, WorldCom, Virginia, Tom DeLay, Republican member of the House of Representatives indicted on money laundering charges. I suppose if I wanted to continue I could find more, but I will stop here.
Have a great weekend!
