SEC Says No More Messin’ Around

WSJ story: that you ain’t gonna have the SEC to kick around anymore — at least if Mary Schapiro (pictured smiling in a pearl necklace) has her way. Quotes Paul Weiss Attorney: Clearly the message going out is that the SEC is going to be much tougher with regard to settlement postures, in terms of penalties. They want to demonstrate there is a tough, new cop on the beat. Headline courtesy WSJ Law Blog.

Will Stockbrokers Exist After This Generation?

FINRA reports that registered reps have seen their job numbers dwindle. 25,810 reps have lost their jobs. Registered Rep magazine reports Smith Barney--now Morgan Stanley Smith Barney following its sale from Citigroup saw its number of financial advisers fall 17% 1Q 2009.

A broker can be a "mentor" for investors to guide them. Others hold out less hope for brokers. In a Forbes article, Bill Singer foresees stock brokers not existing after this generation and instead the market will have commission-paid phone operators who dole out information. If there are going to be brokers and other investment advisers in the future, Singer advocates each professional to take exams with more emphasis on product knowledge and CE than on one's ability to make cold calls. Since the retail investor doesn't often know the difference between a financial consultant and a financial adviser, Singer wants to eliminate those distinctions. More at Forbes' Intelligent Investing Panel.

Read here to see someone disagree: who writes to announce the death knell of the advice business is as ludicrous as saying there will no longer be a demand for teachers or doctors. Are educational or medical websites robust and helpful enough to do away with those professions? How about self-diagnosing and self-medicating in times of illness?
The Reformed Broker also tackles the claim that most investors will just do it themselves: "We were told that online brokerages would be the death of the full-service broker in 1999. Most of those online brokerages have since disappeared or have been swallowed up and the ones remaining now charge zero dollars or so for trade execution. Nice business model:E*Trade’s stock looks like Mickey Rourke’s face, currently hovering around a buck, with flies buzzing around it’s sunken eye sockets. Read more at The Reformed Broker.

CAPCO:Insurance Co. for Big-Money

Capco is virtually unknown even in financial circles, now thrust in spotlight. Creditors and former customers battling over who will get what and when from Lehman. Robert Menendez, Democrat of New Jersey, wrote the Treasury secretary, Timothy F. Geithner, in June to express his concern: “It has become clear that this entity is thinly capitalized,”

Pitch was that while Capco would not insure against investment losses, it would compensate them if firms failed. Capco provides virtually unlimited coverage above $500K offered by SIPC and British equivalent. Its members include Morgan Stanley and Goldman, JPMorgan Chase, Wells Fargo, Robert Baird, Edward Jones and Fido. Capco was initially registered in New York but later moved to Vermont, where state law enables it to operate without disclosing much. More than $32 billion of assets have been tied up in Lehman’s London prime brokerage unit. Untangling the mess could take years. Some former Lehman clients, which include big hedge funds, are looking to Capco for answers — and money. (Picture: Exploring Lehman 'Caves' in Great Basin National Park)

Schumer: Regulatory Flash Order Crackdown | Goldman: More Regulation, Lower Profits or Dimmer Glow?

New York magazine looks at how Goldman is seen as the “ugly essence of capitalism at its most cynical,” and how it is handling so much attention. Includes a stroll through Goldman’s 50th-floor trading room in One New York Plaza, where Goldmanites are seen hovering over computer screens. Read summary via NYT and link to NY Magazine.

Flash orders allow certain members of Direct Edge, Nasdaq and BATS exchanges access (for a fee) to order information for milliseconds prior to that information being made available to the public. High-speed computer software can take advantage of that brief period to allow those members to trade ahead — at better prices — and therefore profit from advanced knowledge of buying and selling activity. ”If the S.E.C. fails to curb this practice, I plan to introduce legislation in the U.S. Senate to prohibit the use of flash orders,” Sen. Schumer said. Go to Article from AP via The NY Times

Cuban Victory Over S.E.C. "ceiling of the Sistine Chapel for securities lawyers."

Cuban backstory and links of the high-profile lawsuit, which lawyers said was an aggressive move by the agency. Cuban Lawyer said it "is the ceiling of the Sistine Chapel for securities lawyers." Others said implications limited because Cuban was judged not to have a fiduciary duty.

Cuban denied the allegations and played hard ball with the agency in statements on his blog and in court. For an extraordinary email exchange between Cuban and an SEC attorney from Fort Worth, click here.

Accused Goldman Code Swindler: Thief or Whistleblower?

Coverage of Sergey Aleynikov, arrested July 3 on charges of stealing proprietary trading code from Goldman Sachs as reported by Baristanet: Before you get yourself involved in a major espionage, it's a good idea to first get rid of embarrassing videos on YouTube.
Reuters has been on the Soprano-Sergey connection. Over the weekend, a Reuters reporter went to North Caldwell to take a look at Aleynikov's house. Aleynikov is being hailed by some not as a thief but as a whistleblower. On Facebook, there is now a Sergey Aleynikov Fan Club, thanking Aleynikov for giving "us all a priceless insight into the the dark side world of the mega market makers in the world of finance."

Two Regulators Better Than One? CFTC/SEC Merger Debate Cont'd

More about merging the S.E.C. and C.F.T.C. in a hearing before two Congressional panels about regulatory changes to the derivatives market. When the Obama administration chose the new chair of the S.E.C., there was speculation that, because she was previously head of the C.F.T.C., she would push to combine the two. Last month, the White House announced its plan to overhaul the nation’s financial regulatory regime, there was no mention of such a move;some lawmakers just can’t seem to let the topic go.

“We should merge the S.E.C. and the Commodities Futures Trading Commission,” Walt Minnick, Democrat from Idaho, said before the House Financial Services Committee and the House Agricultural Committee. “Financial derivatives, whether they originate in a commodity, a security, or neither, like weather futures, are functionally identical and must traded, cleared and settled subject to the same rules. Bifurcated responsibility might be made to work temporarily but is a poor long term solution and discourage bold acting when crises arise.” “Just for clarification, the gentleman spent a lot of time looking at this, but Mr. Frank and I, at least the two of us, have come to the conclusion, that we are not going to be merging the S.E.C. and the C.F.T.C.,” Collin Peterson, Democrat from Minnesota who leads the agricultural committee, said right after Minnick’s remarks.

Widely speculated that a turf war between the two committees has kept the two agencies from merging, Barney Frank, head of the financial services committee, disputed that theory. “I want to begin with an apology to our friends in the media,” he said. “There is no fight to cover between these two committees.”He praised colleagues on both committees, however, he acknowledged that the current system less than ideal.

“I will say that if we were starting from scratch, I don’t think we would have the current organizational structure. But we’re not starting from scratch, and I don’t think it is practical to talk about making major changes.” Hearing’s only witness, Treasury Secretary Geithner, seemed to agree with Frank. When asked about his thoughts, he said the administration was more concerned with “bringing statutes and laws into conformity” rather than merging the agencies.
Summary above courtesy NYT Dealbook where you can also see Video of Geithner speaking about Regulating Derivatives.

Red Flags Rule - Could FINRA treat like AML & Patriot Act?

FINRA doesn't plan to give broker dealers more time than they've already had to deal with a Federal Trade Commission identity theft rule that's effective Aug. 1.

Guidance posted Monday by FINRA, about how to comply with the Red Flags Rule means it expects adherence from the onset. The rule will be a likely focus of upcoming Finra examinations and sweeps, say compliance consultants.

The FTC will require broker dealers to periodically reassess whether they offer or maintain certain types of accounts covered by the rule and, if so, have a written program for identity theft prevention. Such a program should include, at a minimum, policies and procedures to detect certain "red flags" that could indicate identity theft. Broker dealers would also have to update those policies in response to changing risks to customers.

The rule applies to financial institutions and creditors who offer or maintain certain types of accounts, which could include margin accounts. The rule initially caused widespread confusion among broker dealers and other industries about exactly who was affected, and as a result, the FTC extended the compliance deadline twice from its original Nov. 1, 2008 effective date.

As quoted in A DOW JONES COLUMN, Tim Pedregon, a Los Angeles-based compliance consultant and former FINRA examiner, says the self-regulator's interest in the Red Flags Rule mirrors activity beginning in 2002 related to a Patriot Act provision requiring financial institutions to establish money laundering procedures. The National Association of Securities Dealers included Patriot Act anti-money laundering compliance as a focus in its brokerage audits. It often imposed administrative fees for small infractions and, in more egregious cases, fines, he said. An enforcement sweep in about six months is also possible, says Pedregon.(Suzanne Barlyn writes Compliance Watch, a column that focuses on compliance and regulatory issues affecting financial advisers. She can be reached at 212-416-2230 or by email at suzanne.barlyn@dowjones.com)

Be Ready For Your Close-Up and mindful of your Internet Footprints

You should always be ready for your close-up, that could be an Interview or Networking opportunity: have your resume polished when planning or considering a new position and if employed or not check out and be mindful of your Internet "Footprints." To learn more read this article about a job candidate who blogged and tweeted herself out of a job interview.

Hiring managers access Facebook, Twitter and LinkedIn through friends of friends. One is quoted "In the business of networking, people know people. You have to decide what you want your social media face to be. It's like talking in an elevator. You don't know who's listening." In an instance of reverse networking, one job applicant who became virtual friends with as many current employees as possible, thinking that would give him an in when interviewing. It had the opposite impact. Continue reading "Internet footprints follow you into real world"

SEC Blew Chance to Expose Madoff in '04 | Stern's 'Bernie' Near Miss

In 2004 an SEC staff attorney in Compliance, Inspections and Examinations (who previously worked at the American Stock Exchange and understood complicated trading strategies) figured out that there was something wrong with Madoff and submitted a list of detailed questions to her supervisor to pursue the investigation. However, her supervisor told her to turn her attention to mutual funds; at that time the SEC was feeling the heat because the NY Attorney General's market-timing investigations made SEC look bad. Madoff inquiry went nowhere, and the SEC attorney left the agency in 2006.WPost, Staffer at SEC Had Warned Of Madoff Lawyer Raised Alarm, Then Was Pointed Elsewhere.

Did Madoff miss out on a chance to be a part of Howard Stern’s Radio show? A frequent guest on the show nearly escaped with a gold-plated recording of Madoff’s sentencing before she was arrested inside the courtroom.
Ivy Supersonic was caught recording the Court proceeding by Federal Protective Service officers and her “recording device” was confiscated, according to an order signed by Judge Denny Chin. Federal court rules bar the public from recording court proceedings. Device was actually a BlackBerry that belonged to Stern sidekick Robin Quivers, according to Silberstein. Ivy was removed from courtroom before Madoff was officially sentenced.

The Federal Protective Service has deleted the recording but made a copy of it “in the event Supersonic (real name: Silberstein) wishes to assert any rights thereto,” according to the court order. Silberstein, who describes herself as a fashion designer, entertainer, publicist, event planner and animated character designer, told NY Times that the recording “could be worth $1 million.” More at NYT Dealbook.

Everything You Need to Know About Madoff Sentencing

WSJ Law Blog has Wayne State law professor who studied filings in advance of the Madoff sentencing slated for today. Click for an overview of how it’s likely to unfold. Also has earlier posts on filings from Ira Sorkin, Madoff lawyer, and government, respectively (each contains links to underlying filings).

FINRA sank Attorney's job chances as Florida Regulator

FINRA sank his job chances, attorney says - reported by Investment News. A Florida attorney claims that FINRA derailed his bid to become the state's top watchdog in retaliation for a previous legal dispute he had with the regulator. Kevin Carreno maintains that he was on his way to being appointed commissioner of Florida's Office of Financial Regulation when FINRA sent his former employer a Wells notice alerting that he faced potential enforcement actions.
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Congressman Pushing S.E.C. for Madoff Report

Second day in a row, Rep. Paul Kanjorski has strongly urged the SEC to release its internal investigation into how the agency missed Madoff’s $65 billion Ponzi scheme before Congress votes on the new regulatory reform package.

Kanjorski, chairman of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, said in a letter that he wants the final reports on the Madoff investigation by the end of July because he intends to use them as a case study for reform of the financial system. (Read the full text at NYT Dealbook)

On Wednesday, Obama economic team expected to release proposals for new financial regulations. House and Senate expected to begin debating the proposals shortly thereafter.

The SEC inspector general responded to initial letter from Kanjorski on Monday urging him to provide an update on the results of the Madoff investigation. Said SEC intends to issue three reports “very shortly” detailing all of the investigations that the SEC conducted into Madoff-related entities since 1992 and the reasons why the agency failed to uncover the scheme.

Two other reports that will provide specific recommendations on for improvement of the SEC’s various divisions are targeted for Sept. 30.

“I would encourage you to complete your examinations and release your findings sooner, if at all possible, given the importance of these matters,” Mr. Kanjorski wrote in his latest letter to the S.E.C.

SEC Survived, Schapiro Now Fights to Keep Regulatory Teeth

In late April, senior Securities and Exchange Commission enforcement lawyers met to discuss a shake-up that would place them into specialized groups. Some senior lawyers were skeptical.

SEC Chairman Mary Schapiro wasn't hearing it. According to several people present, she said lawmakers were harshly scrutinizing the agency and "we need to demonstrate that we're going to make changes." Then she warned, "If we don't get serious about this process, we may cease to exist." Schapiro, on the job since late January, is fighting two closely related battles: fixing a troubled agency and persuading Congress and the Obama administration that it deserves to survive.

Chairman Mary Schapiro, left, needs to convince Treasury Secretary Timothy Geithner, among others, the value of a strong SEC. Here, the two at a meeting on executive compensation in Washington on Wednesday. Now she is poised to notch her first victory. Printed in The Wall Street Journal, page M4 Write to Kara Scannell at kara.scannell@wsj.com

Wealth Management, High Net Worth, Hedge Fund Pickup?

Lazard, one of the world's preeminent financial advisory and asset management firms, announced that it is starting a private wealth management subsidiary to be managed by Thaddeus Shelly, formerly senior managing director and regional head of Bessemer Trust. Shelly spent eleven years at Bessemer, one of the oldest firms in the business of managing money for wealthy families, and before that he founded and led Legg Mason’s “ultra high net worth” private client services business. Lazard said it plans to offer a variety of services to its customers including tax planning, philanthropic advisory and investment management advice.

Why is this an important announcement? Well, for starters, it’s much more than some a hiring announcement by a prominent company. Frankly, I don’t need to tell you that this is a tough environment. On top of all the dismal economic news, there’s the daunting prospect of more financial regulation and the challenge of trying to anticipate new regulations by possibly new regulatory organizations. Clearly, these are not the times for the timid to undertake expansion.

At The Rosenthal Consulting Group we’re beginning to see signs that the wealth management and private client firms are getting up off the canvass and there’s even some sign of activity in for hedge funds. As such, we’re getting inquiries from those folks about hiring for new slots or re-filling vacant posts. My guess is that such interest will soon translate into hiring, maybe by newly established firms and those still standing. Once floodgates reopen at such firms, I’m guessing that more Law Firms and larger RIAs will soon follow. You can view our current list of employment opportunities at http://RosenthalRecruiting.com.

PS A Regulatory trend and individual investor comfort: An organization of financial advisers says that a few reported rotten apples should not taint the entire group. Finding Financial Advice in an Age of Bad Behavior

THE ROSENTHAL CONSULTING GROUP
Stuart Rosenthal
(973) 462-8766
StuartRosenthal@RosenthalConsultingGroup.com

What is the Right Amount of Regulation?

The looming fight over regulation is the beginning of a broader debate over the future of the financial industry. At the center of the argument: What is the right amount of regulation? Those who favor more regulation say it would offer early warning signals when companies take on too much risk and would help avert catastrophic surprises like the huge derivatives losses at AIG, which has so far received more than $170 billion in taxpayer commitments. Banks say too much regulation will stifle financial innovation and economic growth.

Debate about where derivatives will trade speaks to core concerns about the products: transparency and disclosure.

There are two distinct camps in this argument. One camp, which includes legislative leaders, is pushing for trading on an open exchange — much like stocks — where value and structure are visible and easily determined. Another camp, led by the banks, prefers that some of the products be traded in privately managed clearinghouses, with less disclosure.

Obama administration agrees that more regulation is needed. Proposal unveiled recently by Treasury Secretary Geithner won plaudits, according to the NY Times for trying to make derivatives trading less freewheeling and more accountable — a plan that hinges in part on using clearinghouses for the trades.

Critics in both the financial world and Congress say relying on clearinghouses would be problematic. There are 109 NY Times Reader Comments on this article
as of June 1. You can also enter comments at Compliance and Financial Oversight.