Under Pressure, FINRA Moves to Expand Advisor Background Checks

In the wake of revelations that hundreds of registered advisors have failed to publically disclose personal bankruptcies, criminal charges and other potentially damaging information, FINRA is moving to toughen the reporting requirements for BrokerCheck, its public-facing system for consumers to vet their financial advisors. On Thursday, the self-regulatory group’s board of directors approved new rules that would expand requirements for investment firms to conduct background checks on financial advisors. More in On Wall Street here. [...]

Finra’s Arbitrators: Dubious, Asleep—Sometimes Dead

When a couple in Wichita claimed they lost $187,500 in what they called a Ponzi scheme orchestrated by a Morgan Stanley (MS) broker, the industry-funded Financial Industry Regulatory Authority (Finra) provided a list of potential arbitrators to resolve the dispute. Two of the people were dead, one for more than two years, according to Diane Nygaard, the couple’s lawyer. She calls the faulty list a sign of a broken system that has failed to protect investors. “If it were a regular judicial system, you would not have a case appointed to people who are dead,” she says. “Wall Street should not have a special pet court that they operate.” Millions of Americans who have brokerage accounts must take any disputes about their investments to arbitration rather than court, a requirement that was upheld in a 1987 Supreme Court ruling. After a string of lapses that cast doubt on the system’s fairness and quality, Finra is seeking to reform the system that lets Wall Street keep its dirty laundry out of court. Read More on Bloomberg BusinessWeek [...]

Special Report: For private deals, no one is watching the watchdogs

From 2006 to 2009, Provident Asset Management raised $485 million from 7,700 investors who were drawn to its promises of annual returns as high as 18 percent on oil and gas assets. Law firm Mick & Associates helped. Provident paid Mick to provide “due diligence” reports to help brokers decide whether to recommend the investments to their clients. Brad Updike, a Mick energy-sector specialist, reviewed each of the 23 deals, known as private placements. In one of his reports, Updike wrote that while on a visit to the Dallas, Texas, company, Provident’s founder “showed me several strategic-planning maps” where efforts were under way to drill and complete wells. More on Reuters [...]

Financial fraud in 25 years: A virtual Madoff at lightning speed

For just about as long as there has been money, people have found ways to steal it. And as sure as there will be money 25 years from now—at least in some form—white-collar crooks will still be plying their trade. But new technologies could create a world where, as one former law-enforcement official warns, “the sky’s the limit in terms of what fraud you can commit.” Experts say the crimes themselves never change much. From basic frauds and Ponzi schemes to complex security breaches, money laundering and tax avoidance, there are only so many ways a crook can make a buck. When CNBC launched in 1989, junk bond king Michael Milken was defending himself against securities fraud charges in a sweeping insider-trading investigation. Twenty-five years later another Wall Street insider-trading crackdown—this one focusing on hedge funds—has ensnared 79 people and counting. More on CNBC [...]

Investments and the ghost of Bernie Madoff

Is there a specific rate of return for an investment that should set off alarm bells in your head? You know, where you think this is too good to be true or possibly fraud? This question came up in a recent interview with an AM radio station in Ohio. It was a reminder that while we here at CNBC tend to be money geeks, the world at large wants straightforward answers. More on CNBC [...]

JPMorgan To Pay Madoff Victims $218M After Judge’s OK

A New York federal judge on Thursday finalized a $218 million settlement between JPMorgan Chase & Co. and victims of Bernard Madoff, ending a class action suit that accused the bank of turning a blind eye to the decadeslong Ponzi scheme. U.S. District Court Judge Colleen McMahon entered the final judgment and order dismissing with prejudice the claims brought by Paul Shapiro, Stephen Hill and Leyla Hill on behalf of themselves and other investors. The approval was expected after McMahon agreed preliminarily to the accord in January and held a hearing in March on the matter. More on Law360 [...]

BNY Mellon Escapes Madoff Feeder Fund Class Action

A New York state judge dismissed a class action against BNY Mellon on Tuesday, saying the plaintiffs had failed to prove the investment bank showed gross negligence in ignoring key warning signs in Bernard Madoff’s notorious $65 billion Ponzi scheme that caused investors massive losses. New York Supreme Court Judge Marcy Friedman granted BNY Mellon’s motion to toss the case, saying lead plaintiffs Entwistle & Cappucci LLP, Hagens Berman Sobol Shapiro LLP and Bernstein Liebhard LLP — all of which represented Madoff investors known as the Rye Funds — had not accused the bank of any extraordinary negligence or misconduct, which would be required in order to pursue damages. “It does not allege that defendants breached, let alone recklessly disregarded, any contractual duty. … The law also does not impose any additional tort duty, or duty independent of contract, to exercise reasonable care,” the decision said. More on Law360 [...]

Chadbourne Ruling Lets Madoff Investors Add State Claims

A group of investors burned by Bernard Madoff’s Ponzi scheme were given a green light Monday to add state-law claims to their class action in New York federal court, marking one of the first applications of a recent U.S. Supreme Court decision that clarified when such suits aren’t barred under the Securities Litigation Uniform Standards Act. U.S. District Judge Thomas P. Griesa also raised the possibility that accounting firm KPMG LLP could be reinstated as a defendant in the longstanding suit against Tremont Group Holdings Inc. The investors’ suit, which is part of a multidistrict litigation by alleged Ponzi scheme victims, accuses the Rye, N.Y., hedge fund of misrepresenting how and to what extent it was placing investor funds into Madoff’s hands. The bulk of Judge Griesa’s 10-page opinion was keyed off of the Supreme Court’s February ruling in Chadbourne & Parke LLP v. Troice, which exposed law firms to claims made by victims of convicted Ponzi schemer R. Allan Stanford. More on Law360 [...]

Stockbroker Records to Receive More Scrutiny

Securities regulators are expected to unveil plans to step up checks on stockbrokers’ records, after investigations by The Wall Street Journal revealed flaws in the information available to investors. The Financial Industry Regulatory Authority, a Wall Street watchdog, is set to propose rule changes on Wednesday that would require brokerage firms for the first time to do formal background checks on new employees, including brokers hired from other firms, according to a person familiar with the proposals. More in the Wall Street Journal [...]

Ex-Madoff Aide Seeks Acquittal Citing Tainted Jury Process (2)

One of five people found guilty last month of aiding Bernard Madoff’s $17.5 billion Ponzi scheme asked the judge in the case for an acquittal or a new trial, citing a lack of evidence and flawed jury deliberations. The jury, which deliberated for a total of about three days after a trial that lasted more than five months, wasn’t thorough or objective, and was swayed by a prosecutor’s “inflammatory and improper remarks” during questioning of witnesses, Jerome O’Hara, 51, a former computer programmer for Madoff’s securities firm, said in a filing today in Manhattan federal court. More on Bloomberg BusinessWeek [...]