FINRA Comes Up Shy of the Goal Line

FINRA, the Financial Industry Regulatory Authority in charge of protecting investors (yea right) is going to put brokers who've had their securities licenses suspended or revoked back in the FINRA Broker Check system starting November 30th, 2009. Previously, if you were a broker who lost your securities license, then all you had to do was wait two years and FINRA would automatically remove your record from the FINRA Broker Check system. Apparently, FINRA felt a little bit of heat after the Madoff Scandal by not having these rogue brokers in their system. You tell me. Why on earth was this loophole ever allowed in the first place?

Supposedly there are approximately 15,000 of these rogue brokers running around. That means there are about 300 per state if you do the math evenly across the fifty states. Of course, you can probably surmise that states such as California, New York, Florida & Massachusetts have more than 300 of these rogue brokers running around acting unethical still today. Then, if you further imagine that most of these rogue brokers huddle where the money is, then you probably have a good chance of doing business with one of these creeps if you live in South Florida, or Southern California or similar high net worth areas.

Take heart rogue brokers, especially those with criminal convictions. You have nothing to worry about. FINRA will not let anyone know that you have a criminal record. They are actually excluding the criminal convictions of rogue brokers in the FINRA Broker Check system. FINRA does not think it is relevant apparently. If this is not ass backwards, then I do not know what is. This just goes to show you that FINRA does whatever they want to do and protecting consumers is not one of the things they do, despite what their frilly commercials say.

I know a few rogue brokers and I am anxiously awaiting November 30th to see if these unethical people show up in the FINRA Broker Check system as advertised. I will have to see it to believe it. They put Bernard L. Madoff back in the FINRA Broker Check system to my surprise. The last time that I looked, he was not in there. Now that it doesn't matter, they put him back in there. Where were they when it did matter?

State Regulators May Supervise More Registered Investment Advisers

One of the items being kicked around in Congress right now is to allow the SEC to handoff to the individual state regulators the regulation of registered investment advisers with total assets under management of $100,000,000 or less. This would make a whole lot of sense. I read at Investment News online today, http://www.investmentnews.com/, that the SEC only reviews about 9% of all registered investment advisers each year. This means that 91% are not being examined.

The bulk of all registered investment advisers are in the $100,000,000 and less category. Currently, if you have $30,000,000 or more, then you must be registered with the SEC. By raising the threshold, then the bulk of registered investment advisers would fall back to the states for supervision. Of course in this economic environment, we may see a lot of understaffed and underfunded state securities regulators with a lot more on their plates. Nevertheless, something good may come out it, like new jobs!

Here is an example of the problem with regard to the current regulatory environment. Let us suppose that a registered investment adviser has $50,000,000 under management. Further, let us assume that this registered investment adviser is doing something unethical enough to be shut down. If only 9% of the registered investment advisers are examined each year by the SEC, how long could this unethical firm continue to operate? Theorectically, they could probably go on for a few more years, perhaps even five or six more years before the SEC ever got around to examining them. The state regulator's hands are tied, since they do not have jurisdiction. Even if they were to clue the SEC in on the unethical activity, there is no guarantee that the SEC would deem it serious enough to swoop in immediately. Or, the SEC may have other pressing issues that they deem to be more important.

Contrast this with the same firm being under state regulation now. The state regulators, who are more aware of what is going on with the unethical firm, would have nothing in their way to go in for a surprise exam. They could go in and clean things up.

All in all, I totally agree with the idea to raise the minimum assets under management to be registered with the SEC from $30 million to $100 million. Let us hope that they can get this done.

Thanks.