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FINRA Board Elects to Operate in Shadows

Amerivet Proxies are dismissed by FINRA Board

Over a week ago the FINRA Board of Governors met and decided to take little or no action on the Proxy demands of 70% of its members. Any other corporation in America would have a shareholder revolt and the entire board would be removed but alas…the members of FINRA gave up their right to accomplish this in January 2007. So despite the masses wanting transparency and change they instead get a flip of the bird from a board in which they have little or no control. The decision to allow some disclosures about executive pay was a nice little bone to throw to the masses but even that is actually available if you go digging through court records and IRS filings. I will give some credit to Rick Ketchum for at least explaining parts of the board meeting and doing his best to explain why transparency is a bad idea for FINRA. He at least shed some light on the process and the back room dealings that take place at the board. However the logic behind some of these decisions was more flawed then a Chicago election. For instance, the Board voted NO to members having a ‘say on pay” for the executives of FINRA. In his explanation Ketchum said “this could affect the Regulators ability to regulate effectively if they are concerned about pay”

On the surface this seems reasonable to an untrained ear, however when the top ten employees are making over a million a year in base salary without any limits on their capacity to earn more, doesn’t this affect their ability to regulate as well? For instance, Imagine you’re my old buddy Bob Ericco and your have a huge case sitting in front of you that could potentially call for the suspension of one of Wall Street’s Elite firms. Knowing that you could potentially hurt profits and thus revenue at FINRA if you were to do the right thing and shut them down (see Merrill, Citi, Goldman et al) would you be more apt to go for suspension or another slap on the wrist fine? Some of you may be rolling your eyes now but do a look up of the 10 largest firms on Wall Street and find one suspension or even a restriction placed on them. No matter what the offense was, there is never a restriction placed against the large firms. Whether its mutual funds, research or leverage, they just pay a fine and go back to business as usual. A regulator making millions off of the fees and revenues of the regulated is a recipe for disaster. Perhaps the proxy should have been to limit pay on any and all regulators at FINRA to be ‘No more then double what the chairman of the SEC is paid”. For those of you who don’t know, the SEC Director gets paid about 250k per year so even taking that figure and doubling would put a cap of 500k on any FINRA employee…not exactly chopped liver but also enough to keep conflicts of interest in order. I’d like to point out before I go any further that I am not kidding when I said ‘my old buddy Bob Ericco”. I like Bob and have had many lively debates with him over the years and I am in no way saying he skirted his duties, but the fact of the matter is that regulation that can be manipulated by either side of the monetary scale is wrong and that’s why I feel the Board struck out on this proxy.

The flip side on this proxy vote was that the request for an independent inspector similar to what the SEC already has was rejected. The reason for the rejection given by Mr. Ketchum was that “the office of Ombudsman already exists”. So let’s get this strait, the idea of having a say on pay will affect the ability to regulate, but having an ombudsman office investigate abuses by FINRA will not be affected by the fact that he is paid directly by FINRA? The proof is in the pudding and I can tell you first hand of threats and down right criminal abuse that was reported to the Ombudsman and literally the harassment became greater. That office relies on FINRA dues and fees for its livelihood and in one report it was rumored that the head of this office made approximately 400k per year. If you were making 400k per year would you act upon information that could potentially harm or even force the closing of your organization? Of course not and that’s why you need an independent inspector. In fact, I would recommend to all members to NOT go to the ombudsman for any reason. I’m going to repeat that for those of you who might be shaking their head in disbelief:


Over the years I have heard from countless Firms and Brokers that things got worse after going to the ombudsman and that they regretted going there because the abuse and harassment became greater after making a supposedly private complaint. This is why an independent Inspector is so crucially needed. The Police have this, the SEC has this but not FINRA..why?

It has become painfully obvious that without the ability to remove a Board nothing meaningful will be accomplished and the rejection of the proxy proved that. So what is the next step? Hang onto your hat but a return to one firm one vote is in the future and lawyers from various parts of the country have approached the SIPA and asked if we would help. You tell me. We have won the last 4 elections in which we actively supported candidates at the NAC, Board and SFAB level. Are you ready for a proxy battle to regain your right to one firm one vote and Board accountability? Let us know your thoughts so we can speak as one voice.

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October 11th, 2010



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