The Financial Industry Regulatory Authority, Wall Street’s self-regulator, is moving to curb a trading-surveillance system that has generated opposition from brokers, Chief Executive Officer Rick Ketchum said today. Smaller brokers that don’t use clearing firms will have more flexibility to send trade and commission data directly or to use a service bureau, Ketchum said at Finra’s annual conference in Washington. Trade information about products not held by brokers, such as variable annuities and direct mutual funds, won’t have to be submitted in the early stages of the project, he said. Finra told brokers in December it was working on the system, known as Cards, to help it spot suspicious activity including overcharges and selling unsuitable investments. More on Bloomberg BusinessWeek [...]
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Millions of American investors put their trust in financial professionals every day to help them plan for retirement and other major life events. But when investors depend on financial professionals for their investment needs, they often don’t realize that those professionals may not be serving their best interests. That is because regulatory loopholes allow salespeople to pass themselves off as trusted advisers, without being subject to the appropriate standards to which those who provide money management or advisory services are traditionally held. Not being subject to the appropriate professional standards that accompany a position of trust allows these salespeople masquerading as advisers to serve their own interests at their clients’ expense. In practical terms, they can engage in self-dealing transactions, steering their clients into investments that maximize their own profits with little regard for whether they carry higher costs, more risk, and poorer performance for their clients than available alternatives. The financial consequences of this harm can be significant, as seemingly small cost increases compounded over a thirty- or forty-year horizon can decrease a portfolio’s value by tens or even hundreds of thousands of dollars. For middle-income Americans, the slow and steady siphoning of their nest eggs can be devastating. More on The Hill [...] Wall Street’s self-funded regulator has not been swayed by the U.S. Securities and Exchange Commission’s new policy that some industry wrongdoers should admit to their bad behavior. That may be good for brokers and firms who are targets of the Financial Industry Regulatory Authority’s enforcement actions, but it does not please some investor advocates. SEC Chair Mary Jo White announced last June that the agency would seek admissions of wrongdoing when settling some of its enforcement cases. Previously, the SEC allowed nearly everyone who settled with the agency to sign agreements that did not require admitting to its allegations. Since then, the agency has required admissions in eight settlements, still a small percentage of the SEC case load. More on Reuters [...] Former MF Global customers are urging a judge to exercise caution in allowing ex-officials of the failed brokerage to continue tapping an insurance policy to pay for the defense of lawsuits stemming from the firm’s collapse. The former MF Global officials won’t back down “until the court turns off the spigot and the litigation finally has serious financial consequences to them,” a group of customers backing a class-action lawsuit against former MF Global leaders wrote in a letter filed Monday in U.S. Bankruptcy Court in Manhattan. More in the Wall Street Journal [...] Thousands more victims of Bernard L. Madoff’s Ponzi scheme could receive compensation for their losses based on the preliminary findings of a new claims process administered by the Justice Department. Richard C. Breeden, the “special master” in charge of the Justice Department effort, said the large number of claims suggests the fraud was even bigger than previously known. The early findings contrast with the results of a yearslong recovery process led by bankruptcy trustee Irving Picard, which took a more narrow view of who qualifies as a victim of the fraud. The differing approaches of the two trustees, who oversee separate pots of money, highlight the complex nature of the Madoff recovery, which remains in process more than five years after the Ponzi scheme was discovered. More in the Wall Street Journal [...] The overseer of a U.S. fund to compensate victims of Bernard Madoff’s Ponzi scheme on Tuesday said he has received roughly 51,700 claims seeking to recoup more than $40 billion, both totals far higher than expected. Richard Breeden, a special master appointed by the U.S. Department of Justice to oversee the $4.05 billion Madoff Victim Fund, said it appeared at least twice as many investors as previous thought lost money in Madoff’s fraud. More on Reuters [...] Lawyers for defunct brokerage MF Global on Monday asked a U.S. bankruptcy judge to impose procedures to limit mounting legal fees incurred by Jon Corzine and other former company insiders in litigation over their role in MF’s 2011 collapse. James Giddens, trustee for MF’s former broker-dealer unit, and Bruce Bennett, a lawyer for its defunct parent company, in court papers said former Chief Executive Officer Corzine, former Chief Operating Officer Bradley Abelow and other ex-insiders are mounting exorbitant legal bills through excessive defense tactics. The filings came in response to requests last month by the insiders for a $10 million increase, from $30 million to $40 million, on the money they are allowed to tap from MF Global insurance policies to fund their defense costs. More on Reuters [...] Richard C. Breeden, the Special Master on behalf of the U.S. Department of Justice administering the Madoff Victim Fund (“MVF”), today announced preliminary results for the first stage of the MVF claim process. As of the close of the claim period on April 30, MVF received more than 51,700 claims from investor victims of the fraud at Madoff Securities. Claimants from 119 countries reported aggregate unrecovered net investment losses of more than $40 billion. MVF is the official vehicle for distributing slightly over $4 billion in forfeited assets recovered by the U.S. Attorney for the Southern District of New York from actions against persons involved in the fraud at Madoff Securities. The claims received have not yet been reviewed to eliminate ineligible, duplicate or overstated claims, which MVF expects to be substantial. In particular, MVF received numerous filings on behalf of banks and other managers of pooled investment vehicles that are not generally eligible to participate. As a result, the final totals are expected to shrink considerably before payments commence. However, the flood of claims submitted to the MVF gives a new indication of the size and global reach of the Madoff fraud. More on BusinessWire [...] A New York federal judge has ruled that defendants facing clawback suits from the trustee handling Bernie Madoff’s estate may move to dismiss those claims by showing that he failed to plausibly allege a lack of good faith, according to court documents filed Monday. In a ruling issued April 27 but filed just Monday, U.S. District Judge Jed S. Rakoff said that each of the defendants — various investors who profited as a result of Madoff’s notorious $65 billion Ponzi scheme — may challenge trustee Irving Picard’s assumption that they were sophisticated market participants who, while not necessarily aware of the scheme, violated their duties by failing to investigate its suspicious returns. “In these ordinary circumstances, it is undisputed that a ’securities investor has no inherent duty to inquire about his stockbroker,’ and nothing in [the Securities Investor Protection Act] creates such a duty. … Absent a duty to investigate, a customer’s failure to do so does not equate with a lack of good faith,” the opinion said. More on Law360 [...] |
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