MADOFF: Read the Complaint/Indictment

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Dec 12, 2008 5:20 pm

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An irreverent Wall Street Blog
by Bill Singer
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Madoff: Right Under FINRA's Nose
Written: December 12, 2008



 By Bill Singer


http://rrbdlaw.com


http://BrokeAndBroker.com


As many of you likely imagined, I have been flooded with press calls today about FINRA member firm Bernard Madoff Investment Securities, Bernie Madoff, and the Madoff siblings and employees.  Here's a copy of the SEC Complaint and here is the U.S. Attorney's Press Release about the arrest and criminal indictment. The Madoff empire was a major player on NASDAQ and a long-time kingpin (if not king maker) for many things once NASDAQ, once NASD, and now FINRA.  Just look up the various elected and non-elected seats that the Madoff clan held among industry regulators and trade groups.  


As a lawyer, I will abide by the golden rule that folks are presumed innocent.  I have read the indictment and it is sad, chilling, and disheartening.  I also know that not everyone at the firm was a crook and not everyone will even be implicated.  Still, it's yet more mud thrown onto the reputation of Wall Street.


All of which brings me to my point--yes, the "Singer Point" as many of you likely view it.  That tired, oft-repeated, mantra-like condemnation of the self-regulatory system that has failed the public investor and the securities industry alike.  In the spirit of the holidays, let me keep this uncharacteristically short.


The criminal allegations are not naming defendants who are small-fry pennystock hucksters or boiler-room fraudsters.  This is the cream of FINRA's crop. 


If a major player such as Bernie Madoff and his FINRA-member firm can pull off a multi-billion dollar scam right under the nose of FINRA, then of what value is that regulator?  And let me at least be blunt.  Madoff and his firm were no strangers to FINRA.  To the contrary, they were welcomed if not esteemed.  They sat on Boards, on committees--even on the National Adjudicatory Council that reviews enforcement matters.  Those folks had the ears of the powerful and likely helped formulate policy.


Everything I have read today and everything that I suspect that I will read in the weeks to come apparently went on right under the nose of FINRA.  When its staff did its yearly examinations, either things were disregarded, missed, or overlooked (and quite probably there was a fair deal of obfuscation by the firm as well). It will be interesting to follow the criminal case and see how much of FINRA's dealings with the firm was at arm's length and whether the judgments of many supervisors and executives was clouded by the knowledge that this was Bernie's firm.


I have said it far too many times, but now it bears repeating: Self-regulation is a failure.  What more proof can I offer than to point to this current cause celebre?  If FINRA couldn't detect this--when it went on right under its nose--then just how effective is this regulator?



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Dec 15, 2008 1:19 pm

I think FINRA should be under investigation as well as Madoff.  I cannot think of a SINGLE excuse for not uncovering a fraud of this magnitude. 

Dec 16, 2008 1:56 am

Bill,

    I've been in this business a number of years, and the vicious cycle continues.  FINRA, once again got its hands caught in the proverbial cookie jar. 
 
    It's time for a gut check.  I'm tired of all the lies, mistruths, exagerations, and smoke & mirrors from many "financial advisors" I have seen over the years.  Most brokers are clean, but there is a reasonably high percentage that are not putting the client first (maybe 20-30%?).  How some of these advisors stay in business, I'll never know.  These bad apples are giving this industry a "used car salesman" distain by the general public.  I think all the good advisors on this forum need to be honest with ourselves.  If a broker is clean, they have nothing to hide.  Why not have increased scrutiny?  It will benefit those of us that are running clean business.  Here's a couple ideas to keep the ball rolling....
 
-more than a week long class to sell fixed annuities
-securities license to sell equity index annuities
-maximum 5 year surrender on any investment
-disclosure in "plain english" required for all annuity riders (GMIB, GMWB, etc)
-disclosure in bold the commissions/fees/kickbacks recieved for selling a certain product
-BOLD disclosure of a proprietary product, i.e: Ameriprise selling a Riversource annuity.
-Total annual exense ratios added up an then put in front of the client in BOLD, (I've seen some annuities add up to over 4.5% and the client has no clue)
 
Wouldn't these few simple disclosures/rules clean a lot of things up?
 
By the way Bill, nice suit.