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October 13, 2009
Exclusive: The SEC, FINRA, Madoff, And Stanford: The Painful And Offensive Example Of Symbiotic Relationships Between Our Regulators and Major Criminals
This week, an 80-page internal report of the behavior of Dallas and New York FINRA staff members in actively protecting and shielding Sir Allen Stanford and his billion dollar Ponzi scheme was leaked by unidentified sources. This sickening report drove home the total absence of internal controls at FINRA related to discovering and acting on massive frauds for which they were given nearly untold numbers of signals that should have prompted their action against such parties. Near the end of the report, it was stated that the behavior of FINRA was essentially identical with regard to Bernie Madoff’s Registered Investment Advisor and his related broker-dealer.
Some years ago, I had the chance to see a brilliant and upcoming 18-year-old comedian at “Catch a Rising Star.” He wrecked the audience with the description of his multi-ethnic background, saying his mother and father, who were from different ethnic groups, had met each other on the subway picking each others’ pockets.
After hearing the full stories of the way in which Madoff and Stanford each manipulated the SEC and FINRA to a point of abuse, I was reminded of this routine. The only difference was that in this case we had two RICO criminal enterprises manipulating two other Government and quasi-governmental institutional criminal enterprises, working together to pick the pockets of major investors, domestically and internationally.
All of this went on while all were conning each other and most of the American investing public that they had any other purpose in mind at all. The facts of these stories were simply too closely aligned to the comedy routine to be anything other than tragic.
When the now famous certified fraud examiner called FINRA a RICO, he could have said the same thing about the SEC. Both organizations have become revolving doors for key lawyers who swing in and out of lucrative securities legal partnerships, into the securities industry, then into the Regulatory organizations in a never ending twisted Merry-Go-Round.
I don’t know this cited fraud examiner, but all elements of his conclusions are consistent with my experiences with this process. I have watched the electronic counterfeiting of securities and assets of all forms literally explode, to the point where the underlying assets no longer control the markets. Rather, the electronic counterfeits and derivatives trading on those assets do. The tail is wagging the dog, while the dog’s food is being stolen out of his bowl.
The bald-faced arrogance of these parties goes to the very point of insulting every American citizen, shoving sedition in their face and saying to them: “You don’t have the cojones to be able to make us stop stealing. To the devil with you and your horse.” And, so far, the American people have said nothing. And they will continue to say nothing until the day when they don’t. When that happens, this ATM toy will be too broken to fix with anything other than a draconian outcome. This latter outcome is what I fear.
So how bad has this become? Jim Pavia’s Investment Newsletter recently announced that Registered Investment Advisors were in an absolute panic to insure that the SEC – and not FINRA – would be given responsibility for their oversight in the newly emerging financial regulatory structure. Surely these advisors have to know that they are choosing between the Devil and the Deep Blue Sea. As hard as it may be for anyone rational to believe, the SEC is still undeservedly perceived as being superior ethically (WOW!) to FINRA, surely an opinion of degree, not substance.
Securities lawyers everywhere are anxiety ridden that some organization other than the SEC may be inserted between them and where the rubber meets the regulatory road. They make their livings off the purported value of their knowledge of and access to the influence of key SEC decision makers, just like lobbyists. That this has been so true for so long has insured that systemic corruption has sneaked its ugly head in under the edge of the proverbial SEC tent. They don’t want anyone fouling their lunch pail.
If anyone really cares other than abused investors about this matter, I can see no proof of it in our Congress or Senate, other than with key legislators who are no longer in power. CNBC announced Friday that New York was now down to #3 in World Financial Centers, behind, logically, London, and, astoundingly, Australia. I would attribute this to a more sincere and professional dedication to honest markets in both arenas than that demonstrated by the U.S. today.
Who do we have to blame for that? The SEC, FINRA, and a U.S. financial culture of corruption that crucifies the small thief, while at the same time allowing BIG thieves to get away with murder, literally and figuratively. This attitude has pervaded our Federal Court system, which has ruled against victims time and again, to their ultimate disgrace and discredit.
If our courts can’t be trusted, victims will ultimately turn to their own kind of short sellers, not the unregulated vigilantes as naked short sellers were described by the SEC in a moment of terrifyingly stupid arrogance, but rather non-traditional vigilantes turning on public officials who have disgraced their offices in self interest, to their personal shame. Their weapon of choice will be twofold: the first being their votes, and the second being recall and impeachment petitions. Our publicly corrupt officials are playing with the business end of a fire coming from a flame thrower. They can only blame themselves for the outcome.
Time wounds all heels. In their case, they repeat the Einstein-described pattern of behavior qualifying as stupidity, repeating the same behavior over and over expecting a different outcome. This outcome is reflected in history, and the outcome will be the same. Paraphrasing Sun Tzu, if you wait at the door of the soup kitchen long enough, you will see your enemies walking in.
FamilySecurityMatters.org Contributing Editor C. Austin Burrell is a corporate finance generalist with over 30 years of Wall Street and related experience. He was a senior derivatives specialist and development stage company investment banker for more than 35 years on Wall Street.He is a 1968 Graduate of the U.S. Military Academy and a graduate of the Army’s Finance Officer Advanced Course.
Reader Comments: Submit Your Comment (2)
Burrell is a lifelong penny stock scammer and a disgrace to the uniform.
Thank you for your article. I've been screaming at the top of my lungs about FINRA. The organization is all but a joke. From the various divisions and call centers, to the legal and regulatory departments, few if any of the employees have a clue about their own rules and guidelines. I've complained about one firm for more than a year, I've given them more than sufficient evidence of the rules the firm has broken and still FINRA does nothing. This firm is getting away with murder and FINRA does nothing. The organiation has 1000s of rules and guidelines for firms but no earthly idea how to enforce them. Firms are aware of this. The fines for stealing investors money are so small why would they do otherwise. If I'm a broker and steal $millions from clients, I may get caught but if I do, I simply hire a FINRA attorney in arbitration pay a few thousand in fees and I'm home free to steal more money from more clients at a different firm. LOL its a wonderful game for FINRA and the firms. FINRA continues to get their fees and the broker continues to steal. The only losers in the whole Wall Street game is investors. Its enough to make me sick.
After 20 years in the industry I let my license go and vow never to work in the industry again.
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