Why I think FINRA is behind it

[Mr. Bill]

I will still never get over the AT&T Wireless spinoff and the WorldCom bond debacles.

At the time, Smith Barney was pushing HARD to be the lead underwriter of the AT&T Wireless spinoff, and Jack Grubman the analyst, caved. I'm sure he wasn't in it for the money (ha). Sure enough, he upgraded T, they got the deal, and waited the required 30 DAYS before downgrading T once again. It was a clownfest. Blatantly obvious! Not certain of ultimate outcome, but here's a synopsis from a while ago:
Law.com: AT&T Investors' Suit Survives Dismissal Motion

And anyone who bought into the largest public bond offering in history at historically high rates offered by WorldCom was quite simply a fool, fooled by either ruthless (the investment bankers) or stupid (the financial advisors on the retail side) people. That was just as obvious at the time.

Now, if someone as dumb as I am could figure all that out AT THAT TIME then how come all the "smart guys" at the SEC and NASD couldn't?

The regulators make me want to just puke. Worthless, completely worthless.

 

[URDRWHO]

It only took the SEC & NASD 60 years to close the analyst and the IPO loophole.

I was still doing general securities at the time and I had a client that wanted to invest in an IPO. His neighbor told him about it. I told him the risk of IPO's, had him sign my usual "I told you not to do it" form but he wanted to do it. So I did some research and found that the analyst for the underwriting brokerage had a position in the IPO. My client told me that he knew the brokerage had a buy signal on the stock. I told him about the analyst and asked if he thought the analyst would give a sell signal for a stock that she owned. He thought about it and said he would think about it. The next day my client calls and tells me to buy the IPO.

My client bought at $31 and almost immediatly the price headed south. My client rode it down to $16 and asked me to sell. Within a year the IPO had investor suits for frudulent accounting, patent suits, they were de-listed and eventually the stock settled at fifty cents. Seven years later the company ws bought out by a big German firm. On news of the buy-out the stock rallied and reached a high of $35.

I always wondered why the powers-to-be allowed an analyst at the same brokerage that is underwriting the IPO could own the stock. The SEC came out and said that the analysts can continue to own new issues but they must have better disclose that they own it. There it is again, that wonderful SEC disclosure for wall street. Allows them to continue the nonsense but as long as some long length, prospectus discloses that the analyst owns the IPO....it is ok. Doesn't the SEC know that clients don't read those long, boring dreadful things? All the SEC and FINRA want to do is say, "see we are protecting the public" and puff up their bellies. Meanwhile the big guns of wall street go about their usual nonsense.

I would say 90% of the FINRA rules do hardly anything to protect the public. It is a big, fat, expensive, bureaucratic joke. Does sending every client correspondent piece to compliance do anything to protect investors from wall street? No.

Does the FINRA rules for font size on business cards do anything to protect investors from wall street? No.

The above client was one of multiple clients that I told to find new brokers. It was during the Dot-Com era and I was not a Dot-Com believer. Certain clients kept asking me to do riskier and risker trades. I told them that they want to do things that I don't feel are suitable and they should find new brokers. I am sure they did and those brokers filled the trades. After the dot-com bubble burst I saw one of the clients. He told me he lost $150,00 in the dot-com crash.

I will still never get over the AT&T Wireless spinoff and the WorldCom bond debacles.

At the time, Smith Barney was pushing HARD to be the lead underwriter of the AT&T Wireless spinoff, and Jack Grubman the analyst, caved. I'm sure he wasn't in it for the money (ha). Sure enough, he upgraded T, they got the deal, and waited the required 30 DAYS before downgrading T once again. It was a clownfest. Blatantly obvious! Not certain of ultimate outcome, but here's a synopsis from a while ago:
Law.com: AT&T Investors' Suit Survives Dismissal Motion

And anyone who bought into the largest public bond offering in history at historically high rates offered by WorldCom was quite simply a fool, fooled by either ruthless (the investment bankers) or stupid (the financial advisors on the retail side) people. That was just as obvious at the time.

Now, if someone as dumb as I am could figure all that out AT THAT TIME then how come all the "smart guys" at the SEC and NASD couldn't?

The regulators make me want to just puke. Worthless, completely worthless.

 

[xrac]

.....There it is again, that wonderful SEC disclosure for wall street. Allows them to continue the nonsense but as long as some long length, prospectus discloses that the analyst owns the IPO....it is ok. Doesn't the SEC know that clients don't read those long, boring dreadful things? All the SEC and FINRA want to do is say, "see we are protecting the public" and puff up their bellies. Meanwhile the big guns of wall street go about their usual nonsense. I would say 90% of the FINRA rules do hardly anything to protect the public. It is a big, fat, expensive, bureaucratic joke. Does sending every client correspondent piece to compliance do anything to protect investors from wall street? No. Does the FINRA rules for font size on business cards do anything to protect investors from wall street? No.....

Well said. Having sat through Firm Element compliance training I understand what you are saying. The character and abilities of the compliance people you realize what a joke this all is and the people who don't understand FINRA think we will be better off with FIA as securities.

 

[djs]

The problem is, no matter how many problems there are with FINRA and SEC, it doesn't eliminate the problems with the way EIA's are sold currently. This shouldn't be a matter of just slamming FINRA and the SEC, but you should present a viable alternative.

I've been opening to much mail lately that tells me how great EIA's are, and yes, I've realized there is a major problem with how they are presented and sold, at least in comparison to other investment products.

Dan

 

[URDRWHO]

Laughing out loud, a very long and hard laugh. Tell me again how Wall Street will be the ethical savior for the sale of FIA's.


Bloomberg.com: Worldwide

SEC to Probe Manipulation Through False Information (Update2)

By David Scheer

July 13 (Bloomberg) -- Wall Street's biggest regulators are examining whether securities firms adequately police rumor- mongering used to manipulate stocks after shares of Lehman Brothers Holdings Inc., Fannie Mae and Freddie Mac tumbled last week.

The U.S. Securities and Exchange Commission's inspections unit, the Financial Industry Regulatory Authority, which monitors brokerages, and the New York Stock Exchange's regulatory arm are checking whether firms have controls in place to prevent the intentional spread of misinformation, the SEC said in a statement today. They will also look at whether employees have been adequately trained.

Well said. Having sat through Firm Element compliance training I understand what you are saying. The character and abilities of the compliance people you realize what a joke this all is and the people who don't understand FINRA think we will be better off with FIA as securities.

 

[URDRWHO]

You make are assuming I agree that there are widespread problems with marketing. As I have previously mentioned, I talked with legal in my State DOI and FIA's are not presenting to them, the wide spread abuse that we are led to believe. The numbers I've seen lump FIA's in with other products if you have better info than I could fine please post it. I would think if marketing schemes were so egregious, after over $100 billion is sales, there would be a flood of complaints.

My current goal is to keep the SEC and FINRA out of the insurance business. Exposing FINRA and the SEC's own lack of stopping unethical behavior presents the argument, "why would FINRA do any better and better at what?" I would probably feel better if each State Securities Commissioner's took over the jurisdiction of FINRA.

National Journal Magazine - Cover Story - Higher and Higher

By Bara Vaida, National Journal
© National Journal Group Inc.
Friday, Feb. 15, 2008

"Several individuals on the list of top earners received large final payments when they left their employers. The executive with the top pay this time, Robert Glauber, retired from the National Association of Securities Dealers (since renamed the Financial Industry Regulatory Authority) in 2006 with a total compensation and benefits package of $6.8 million.

Glauber declined to comment for this article, and a FINRA spokeswoman argued that the authority did not belong in our survey because it is not a trade association or interest group.

After considering FINRA's argument, we decided to include the group because FINRA is seeking a lobbyist to help support the mission of "maximizing FINRA's recognition and positive reputation among key federal and state governmental officials and staff ... and advocating FINRA perspective on policy issues that could impact the organization." That's exactly what trade associations and interest groups do in Washington."

The NASD had what was called NASD INVESTOR EDUCATION FOUNDATION. According to their public form 990 for the year 2005, it is shown that the President made:

http://www.guidestar.org/FinDocuments/2005/200/863/2005-200863779-02b33d59-9O.pdf

Compensation - $ 1,056,457
Contributions to employee benefit plans and deferred comp plan - $ 436,334
Expense account and other allowances - $ 4,833

The Senior Vice President and Corporate Controller didn't make out bad with a stock sale........

10% Owner has an X marked in it.

EDGAR Pro

It sure seem like there is some serious money floating about for a non profit.

Do we believe that FINRA is just a babe in the woods, a babe just wanting to do altruistic work, not wanting to get bigger, not wanting more paying members?

The problem is, no matter how many problems there are with FINRA and SEC, it doesn't eliminate the problems with the way EIA's are sold currently. This shouldn't be a matter of just slamming FINRA and the SEC, but you should present a viable alternative.

I've been opening to much mail lately that tells me how great EIA's are, and yes, I've realized there is a major problem with how they are presented and sold, at least in comparison to other investment products.

Dan

 

[djs]

Good luck with your mission. Ignoring the problem, putting your head in the sand, etc, and blaming finra/sec won't resolve the issue.

I hope you accomplish whatever it is you are setting out to do.

On the other hand, if you want to present an alternative solution, I'd gladly listen to it.

Dan

 

[URDRWHO]

I am not blaming FINRA or the SEC for unethical people. How in the world can I do that? But being a member of FINRA does not make unethical people stop being unethical.

What can be done about any of the unethical people in the world. Maybe a few hot ovens, some gas maybe?

So what have they done for the Mutual Funds? Those wonderful mechanism that for decades have been prospectus items.

So maybe we should stop the Registered reps from selling Mutual Funds?

"Mutual funds are supposedly the investment of choice for those who'd rather not be bothered with details but as the market-timing scandals have demonstrated, mutual fund investors are at the mercy of all kinds of rapacious individuals they never even knew existed."

" The vast majority of registered brokers in our state provide reliable, honest assistance that helps their clients acquire financial security, but Blunt's securities commissioner is still receiving a high level of complaints from investors of brokers cutting corners or resorting to outright fraud to fatten their wallets. "I give credit to the increasing numbers of investors who are giving their brokerage statements a closer look and asking the right questions about unexplained fees, unauthorized trades or other irregularities," Blunt said."

"MUTUAL FUND BUSINESS PRACTICES -- Although mutual funds play a tremendous role in the wealth and savings of our nation, ongoing scandals throughout the industry clearly demonstrate that some in the mutual fund industry are putting their own interests ahead of America's 95 million mutual fund shareholders. Blunt, other state securities regulators, the Security Exchange Commission (SEC), National Association of Security Dealer (NASD), and mutual-fund firms themselves have launched a series of inquiries into mutual fund trading practices. To date, more than a dozen mutual funds are under investigation and several mutual funds and mutual fund employees have either pleaded guilty, been charged or settled with state regulators. "These investigations demonstrate a fundamental unfairness and a betrayal of trust that harm Main Street investors while creating special opportunities for certain privileged mutual fund shareholders and insiders," Blunt said. "We will continue to actively pursue inquiries into mutual fund improprieties and are committed to aggressively addressing mutual fund complaints raised by investors in our jurisdiction," he added."

Older investors must be on their guard about unwarranted claims that some financial professionals make in their sales pitches. Inadequate or misleading communication about products is compounded by prospectuses (and other investment disclosure documents) that are very difficult for people to understand. Many elderly investors claim they are not informed of, or fail to understand, sales charges, up-front fees and/or rear end charges. The Banking Department actively supports various efforts to crack down on abusive sales practices and to simplify prospectuses.

Misleading fund names. Often the name given to a mutual fund may not adequately reflect its actual investment objective. Unsophisticated investors may be misled by terms such as "income" or "government" funds into believing that investments made in such products will not entail risk. In fact, the asset value of any mutual fund may fluctuate due to changes in market conditions."

This current fight is about keeping insurance regulation within the States.

Here are articles of bad actors, enough to go around and 98% are already under the FINRA umbrella of protection.

Take note of these two idiots who should get an award for unethical idiots....

"Florida regulators sued two insurance agents who convinced clients to liquidate annuity investments and invest in a bogus real estate company by promising returns of up to 9%."

The one guy didn't turn to the good side and did it again.

"Detectives arrested Masciarelli a second time in 2005 and charged him with stealing $300,000 from three investors – a 58-year-old woman supporting a disabled adult daughter, an 82-year-old woman with no family, and an 80-year-old man suffering from Parkinson's disease."

http://www.sec.gov/spotlight/seniors/elderfraud.pdf

Maybe a certification is needed from the State DOI to sell an FIA but it is no way a protection from unethical people.

Good luck with your mission. Ignoring the problem, putting your head in the sand, etc, and blaming finra/sec won't resolve the issue.

I hope you accomplish whatever it is you are setting out to do.

On the other hand, if you want to present an alternative solution, I'd gladly listen to it.

Dan

 

[bobson]

Good luck with your mission. Ignoring the problem, putting your head in the sand, etc, and blaming finra/sec won't resolve the issue.

I hope you accomplish whatever it is you are setting out to do.

On the other hand, if you want to present an alternative solution, I'd gladly listen to it.

Dan

There is no 'solution'. That seems to be the point you miss. People need to watch out for themselves. There will alway be hucksters, shysters, and snake oil salesmen, no matter who is in charge of FIAs.

If FINRA gets to be in charge of FIAs, I do believe abuses will decrease by 75% because sales of FIAs will decrease by 90% and maybe they will be completely destroyed because there will be no profit in them for the insurance companies.

Does the reduction in abuse for a few outweigh the harm to the many created by essentially removing FIAs from the landscape?

 

[JMO Fan]

There is no 'solution'. That seems to be the point you miss. People need to watch out for themselves. There will alway be hucksters, shysters, and snake oil salesmen, no matter who is in charge of FIAs.

If FINRA gets to be in charge of FIAs, I do believe abuses will decrease by 75% because sales of FIAs will decrease by 90% and maybe they will be completely destroyed because there will be no profit in them for the insurance companies.

Does the reduction in abuse for a few outweigh the harm to the many created by essentially removing FIAs from the landscape?

You might be right. But I think sales decreases would be due more to more direct comparison with variable annuities than from profit decreases (which would be minimal). I don't think EIA can compete with a VA with minimum benefit guarantees.