In its $285 million settlement with Citigroup, the SEC, under some bizarre delusion that it wields power, gave the bank an intimidating finger-wagging of “now, don’t do this again!”
Because, clearly financial institutions are very scared of the SEC (Blair Witch-style).
As many have pointed out, in the past 8 years, the SEC has accused Citigroup of securities fraud in five separate incidents and in every instance the firm paid a fine and promised not to do it again (and by “it” I mean obey the existing rules they are supposed to abide by all the time).
See? The SEC keeps pleading with Citigroup not to behave this way and it is obviously resonating. The SEC is not to be messed with. Neither is FINRA for that matter. A month ago, the U.S. Court of Appeals for the Second Circuit ruled that FINRA cannot rely on the courts to collect on fines against brokers/brokerage firms.
Basically, when FINRA finds that a firm or an individual has violated securities rules it can decide to suspend the parties, expel them from the securities industry and/or order them to pay money as remuneration for wrongdoing.
The trick is that if those fines aren’t paid to FINRA the only thing the regulator can do is complain or tweet about it. (#canIbeaKardashian). So, as I said, FINRA and the SEC wield Greek-god-like power that is sure to scare banks and fraudsters straight.
A bit cynical, sure. But, even U.S. District Judge Jed Rakoff gets it. He called the SEC’s futile pretty-please-don’t-do-this-again declaration to Citi a move that was “just for show.” This is not the first time regulators have issued vapid warnings.
Before Robert Allen Stanford was charged with orchestrating a $7 billion fraud in 2009, he had been involved in seven FINRA arbitration matters in which he was charged with varying degrees of fraud and on four separate occasions, in 2007 and 2008, FINRA fined Mr. Stanford for misrepresenting facts about CDs or failing to disclose information.
While Stanford shuffles around Butner Federal Correctional facility, we know that he, like Citigroup, heeded the fines and warnings issued by FINRA and took them seriously. Similarly, Bernie Madoff had a few visits from the SEC in the early 2000’s before he finally confessed to his enormous Ponzi scheme. In that situation, we know that not only did the SEC ignore the numerous warnings issued by Harry Markopolos and Frank Casey’s team but also just blindly accepted the nonsense Madoff fed them.
And, as recently reported, to punish themselves for their negligent behaviour in investigating the Madoff sitch, the SEC announced it “disciplined” eight of its employees. No, they didn’t get fired. They got disciplined, not unlike how the SEC disciplined Citigroup.
So, we understand these regulators need to get it together through either public embarrassment or coercion from the justice system (maybe some therapy sessions, a Blueprint cleanse or a SoulCycle class would help too). Until then, what number do investors call for protection? The answer: investors use their own digits; fly their own bat signals.
Investors cannot rely primarily on reputation as it is often baseless: from Exhibit A, Madoff to Exhibit Z, Jerry Sandusky (the depraved deviant who used his football legend status to sexually abuse young boys and have his friends and others in power be his beard like a microcosmic version of the Catholic Church). Whether investors hire a professional investigative firm or hit the public records themselves, the onus is ultimately on the investor to gather the information.
Background checks are an integral part of risk assessment and give investors the complete picture of the individual(s) behind the screen. From regulatory actions to salacious media attention and from lawsuits by former partners and class actions by shareholders to conflicts of interest, this intelligence empowers investors to make the most informed decision.
While the restless, unemployed and now presumably unclean, are focused on Occupying Wall Street, investors need to mobilize to protect their interests and police the landscape themselves since no one else is doing it.