FINRA, aka Financial Industry Regulatory Authority, the SRO that serves as overseer of the securities brokerage industry and broker-dealers at large has completed the election campaign and voting process for electing individuals to its Board and the election winners include a former Bear Stearns partner as well as a current senior exec of hedge fund complex Bridgewater Associates.

Per WSJ-The chief executive officer of a San Francisco investment bank prevailed in a hard-fought election to join the board of Finra, the front-line regulator of stockbrokers, knocking off an incumbent and a well-known challenger who campaigned on the message that rigid oversight is choking small firms.

Bob Muh, the CEO of Sutter Securities Inc. and a former Bear Stearns partner, narrowly defeated three other candidates to win a seat on the board of the Financial Industry Regulatory Authority. He beat the second-place candidate, Stephen Kohn of Lakewood, Colo., by just three votes, according to people familiar with the matter. Robert Keenan, a sitting board member who also upset an incumbent when he won his last election in 2013, placed third. Mark Howells, a broker based in Scottsdale, Ariz., also competed in the race.

Finra, one of the country’s most powerful financial regulators, allows the industry it oversees to elect some of its officers. While Finra isn’t a government agency and ultimately answers to the Securities and Exchange Commission, Congress has sanctioned its role as a standard-setter and rule-enforcer for the brokerage industry.

Finra’s bylaws require that a majority of its 24-member governing board have no industry ties. But Finra reserves three board seats to represent its 3,550 small-firm members. That board structure has fostered the unusual dynamic of candidates campaigning for office at the overseer by vowing to lighten its oversight.

Turnout in the election was about 43%, meaning about 1,500 of Finra’s small-firm members voted, people familiar with the matter said. (For the full WSJ article, click here)

A more colorful take on the above is courtesy of DealBreaker’s Jon Shazar:

t may surprise you (but probably shouldn’t) to learn that there are some people who think FINRA’s doing too good and too thorough a job regulating broker-dealers. That it’s really nobody’s business if a broker levies an unspoken lap dance fee. That its website is actually too up-to-date and too easy for clients to use to find out about the levying of unspoken lap dance fees. That the problem isn’t FINRA’s habit of whitewashing what broker records are available, but that there are just too many disciplinary actions being taken that require whitewashing. These people are called FINRA members, specifically its 3,550 small-firm members. And because self-regulation is a hilarious carnival of ineptitude and bad optics, these small firms get to elect a representative to FINRA’s board, to represent their interest in going unregulated to the greatest extent possible.

These triennial contests have all the hallmarks of a real political campaign: websites, mudslinging, throw-the-bums-out mentalities. Unsurprisingly, they also look an awful lot like a local Tea Party meeting, with candidate trying to one-up the other in making deregulatory promises they’ll never be able to keep in the face of the 23 other FINRA board members who don’t think it’s a great idea to provocatively antagonize customers, the press and the Securities and Exchange Commission at every turn.

This year, the bum getting thrown out was Robert Keenan, elected three years ago on the platform that the previous bum wasn’t doing enough to get these regulatory pencil pushers off their goddamned backs, and who was felled by the same sword. But the winner—who will get to serve alongside fellow new FINRA director and Bridgewater exec Eileen Murray—wasn’t the most fire-breathing of the candidate. Instead, by a margin of all of three votes out of 1,500 cast, the small folks of FINRA picked a 78-year-old former Bear Stearns, Bob Muh, partner to carry the doomed torch.

Mr. Muh, 78 years old, was seen as a moderate and experienced voice in a campaign in which Mr. Kohn accused Mr. Keenan of playing fast and loose with campaign rules and not pushing back hard enough against regulations that brokers oppose….

“I certainly can’t call it a landslide or a mandate, but I’m delighted I’ll have the chance to convince the independent directors on the board of some the changes that are need for the small firms,” Mr. Muh said in an interview Monday after Finra announced the results.

The post FINRA Election Mirrors Presidential Race? appeared first on BrokerDealer Blog.

The post FINRA Files Fraud Charge Against AZ Muni Broker appeared first on BrokerDealer Blog.

Those officers on Wall Street in charge of ensuring that traders and other employees stay on the right side of laws and regulations are increasingly in the cross hairs themselves. And, not in the context of traders aiming spitballs at the compliance cops whose job, according to traders and sales/traders is to (i) be annoying by blocking every move, including the one to the restroom (ii) pretend they are cops, because they couldn’t pass the local police dept application exam (iii) have an opinion about the nuance within every email or chat message.

Several recent enforcement actions found compliance officers personally liable for mistakes within their firms. Meanwhile, New York’s principal financial regulator, backed by New York Gov. Andrew Cuomo, wants the power to seek criminal charges against compliance officers in some cases.

Compliance officers are “shaking in their boots,” said Carrie Mandel, a member of recruiter Spencer Stuart’s legal, compliance and regulatory practice. She is among a number of recruiters, lawyers and executives who say the heightened accountability is driving experienced people to be more cautious about the profession and making it difficult for banks to find replacements.

Around three dozen senior bank-compliance executives left their jobs in 2015, three times the number of a year earlier, said Daniel Solo, a managing director at recruiter Sheffield Haworth. Most of those were in positions overseeing anti-money laundering or financial crime, he said.

Compliance officers say they feel unfairly singled out. ​

“It’s easier for firms to give up their compliance officer, because what are they going to do, give up the CEO?” asked a compliance officer who has worked for large U.S. and foreign banks.

​Since the financial crisis, banks have hired compliance officers by the thousands to address internal issues that led to massive fines. They are also often responsible for getting banks to adapt to the flood of new regulations in recent years.

While industry-wide figures aren’t available, many banks have touted their investment in this area: J.P. Morgan Chase & Co., the country’s biggest bank by assets, said in its annual CEO shareholder letter in April that the firm added 8,000 compliance employees.

When Goldman Sachs Group Inc. recently said it had increased its head count by 8% to 36,800 in 2015, the firm cited compliance as the main area of growth.

To keep reading Emily Glazer’s column, click here

The demand for qualified people is driving up salaries, with chief compliance officers at some large banks earning more than $2 million a year, according to recruiters and compliance executives. Specialists in anti-money laundering executives can earn more than $600,000.

Regulators are also focusing on who the compliance executives report to. The Office of the Comptroller of the Currency recently told some big banks that it doesn’t want the compliance officers to report to executives who run businesses directly, people familiar with the matter said.

The idea is to give compliance officers more independence from those executives who help set policies and manage people in the field.

At J.P. Morgan, the chief compliance officer may begin reporting this year to the chief risk officer or another executive, instead of the chief operating officer, people familiar with the matter said.

Regulators increasingly want to make sure compliance officers aren’t merely rubber-stamping bank decisions and that there are penalties in place when the executives willfully overlook bad behavior or fail to see it through monitoring systems they have signed off on.

In a November speech before the National Society of Compliance Professionals, Andrew Ceresney, director of the SEC’s Enforcement Division, said the agency sees itself as being on the same side as compliance officials in terms of being watchdogs for potential wrongdoing.

He said he was aware of the concern within the industry over the recent enforcement actions but stressed that the agency brought cases “only when the conduct crossed a clear line.”

In April 2015, the SEC fined  Bartholomew A. Battista, chief compliance officer at BlackRock Advisors LLC, $60,000 for failing to report a conflict of interest involving one of the firm’s executives, according to the SEC. The executive invested $50 million of his money in a family-owned energy company, which became a joint venture with another company that was a major holding in a fund he managed, an arrangement the SEC said was a breach of fiduciary duty. Mr. Battista was aware of the conflict and didn’t report it.

BrokerDealer.com provides the global financial industry’s most comprehensive database of broker-dealers and regulated bankers operating in more than 30 countries throughout the free world

The penalty was the agency’s first under a 2003 rule allowing it to hold compliance officers liable for such mistakes. Mr. Battista and BlackRock neither admitted nor denied wrongdoing.

That case, along with a similar action in June involving another firm that the SEC disclosed, prompted then-SEC commissioner Daniel Gallagher to write the only dissent of an enforcement action in his four-year tenure.

Mr. Gallagher, a Republican, wrote that the agency “should strive to avoid the perverse incentives that will naturally flow” from targeting the officers who are on the front lines in preventing wrongdoing. He said the SEC “seems to be cutting off the noses of [chief compliance officers] to spite its face.” Mr. Gallagher left the agency in October. ​

Other regulators, including the Financial Industry Regulatory Authority and the Treasury Department’s Financial Crimes Enforcement Network, have taken actions against compliance officers in the last two years.

In response, some executives are increasingly seeking their own lawyers, asking for more protection in employee contracts and requesting banks pay for liability insurance coverage, said Richard Marshall, a partner at Katten Muchin Rosenman LLP who has represented compliance officers.

The issue could come to a head soon.

The proposed rules by New York’s Department of Financial Services, which regulates some of the world’s largest banks, would require compliance officers to certify bank systems for monitoring suspicious transactions that violate U.S. economic sanctions and other rules.

The post Who Wants To Be a Compliance Officer?! appeared first on BrokerDealer Blog.

Jarred Kessler, Former Head of Equities for Cantor Fitzgerald

In addition, FINRA suspended Jarred Kessler, executive managing director of equity capital markets, for three months in his principal role at the firm and fined him $35,000 for supervisory failures, while equity trader Joseph Ludovico was suspended for two months and fined $25,000. The suspension is a moot point, as Kessler resigned from his role as head of equities for global broker Cantor last week. The regulator also sanctioned Cantor for not having adequate supervisory or anti-money laundering programs to detect “red flags” or suspicious activity tied to its microcap activity.

“If a broker-dealer is looking to increase its revenues by expanding a high-risk business line, the firm and its supervisors must tailor their supervision to the risks associated with those businesses. This is especially true when the new business involves the mass liquidation of microcap securities, which presents overwhelming risks of fraud and investor harm,” said Brad Bennett, FINRA’s executive vice president and chief of enforcement, in a statement.

“FINRA has no tolerance for firms and business executives who choose to engage in this business without robust systems designed to ensure that they do not become participants in illegal, unregistered distributions,” Bennett said.

In settling this matter, Cantor Fitzgerald neither admitted nor denied the charges, though it did consent to FINRA’s findings.

According to FINRA, the broker-dealer did not sufficiently guide or train employees in the sale of billions of thinly traded microcap shares. Furthermore, it did not put into place an anti-money laundering program to detect patterns of potentially suspicious money laundering activity related to these sales.

Kessler, it says, knew that the expanding microcap business “posed unique challenges and was generating an increasing number of regulatory inquiries, but nonetheless delegated his supervisory responsibilities to a central review group without taking sufficient steps to investigate the adequacy of their efforts.”

Kessler resigned from the firm last week, ending a 5-year stint as head of equities. Cantor Fitzgerald declined to comment on the matter.

Following his departure, Kessler’s responsibilities will be handled by members of Cantor Fitzgerald’s executive management for equities Adam Mattessich, Darren Taube, and Peter Cecchini, according to a person with knowledge of the move, who asked not to be identified discussing a private matter. An external spokesman for the investment bank at Powerscourt in London didn’t return phone calls requesting comment about the replacements.

Cantor Fitzgerald’s Howard Lutnick hired Kessler in January 2011 as part of a push to transform the company from a bond broker into a full-service investment bank. Kessler, who joined from Credit Suisse Group AG, previously held roles with Morgan Stanley and Goldman Sachs Group Inc.

Cantor has offices in more than 30 locations globally and employs about 1,600 people.

For the Bloomberg LP rendition of the story, please click here

The post Broker-Dealer Cantor Fitz Hit With Massive Fine by FINRA appeared first on BrokerDealer Blog.

Here’s the simple summary-according to NYT reporting, JPMorgan knowingly submitted phony customer complaints to industry regulator Finra in an effort to malign the integrity and reputation of broker Johnny Burris in an effort to discredit his whistle-blowing charges that JPMorgan pressured brokers to sell house products that were either not suited for certain clients, or were products that were considerably more expensive than those clients could have purchased from other providers.

Courtesy of extract from 4 December front page business section of NYT and reporting by Nathaniel Popper….

Johnny Burris, a former broker at JPMorgan Chase, might have known he was walking into a minefield when he decided to go public with his concerns about his former employer.

Mr. Burris complained in 2013 that JPMorgan was pressuring brokers like him to sell the bank’s own mutual funds even when the offerings from competitors were more suitable. A few weeks after an article in The New York Times about Mr. Burris’s concerns appeared, complaints from some of his former clients in Arizona began showing up on his disciplinary records that are maintained by a regulatory agency and publicly available.

The client complaints made it hard for Mr. Burris to get another job and helped scuttle his case against JPMorgan for wrongful termination. But when Mr. Burris recently reached two of the clients whose names had been on the complaints, they told him they had not, in fact, written the complaints — a JPMorgan employee had.

Carolyn Scott, the ostensible author of one of the letters complaining about Mr. Burris, said in a recent interview with The Times that she had not written the document, but had signed it without knowing the contents after a JPMorgan employee had told her it was something that could help her “get some money back.”

“I was stupid enough I didn’t read it myself,” Ms. Scott said. “I had no problems with Johnny. No problems whatsoever.”

Another man who supposedly wrote a letter of complaint was, it turned out, essentially unable to read or write, and said in an interview that he had never had an issue with Mr. Burris.

BrokerDealer.com investigators located Mr. Burris’s record of phony complaints via Finra BrokerCheck

“I would never have known how to draft a complaint letter, nor could I have drafted the letter in question,” the man said in a declaration that he recently signed in front of a notary public to support Mr. Burris — after the declaration was read back to him aloud.

For Mr. Burris, the explanation behind these complaints was clear: This was retaliation for his criticism of JPMorgan, though retaliation carried out poorly.

“How do you believe I feel knowing that the bank solicited, drafted false, erroneous complaints about me?” he wrote to JPMorgan in late October, after speaking with his old clients.

During the arbitration in 2014, Mr. Burris’s lawyer asked his former supervisors if anyone at JPMorgan had helped draft the complaints and was told: “Absolutely not.”

This week, though, a spokeswoman for JPMorgan, Patricia Wexler, said that one of Mr. Burris’s former colleagues, Laya Gavin, had, in fact, assisted the clients as a courtesy “by typing up what they told her verbally, reading it back to them for accuracy, and submitting them for review.”

Both clients involved disputed that description of the events and said that the complaints Ms. Gavin wrote up did not reflect their sentiments and added that Ms. Gavin had not read the complaints to them before having them sign the documents.

A spokeswoman for the Financial Industry Regulatory Authority, Michelle Ong, said that her organization was “aware of these allegations” about the complaints and was looking into them. Finra is the agency that maintains broker disciplinary records.

Keep reading the NYT story by Nate Popper via this link

The post Did JPMorgan Commit Fraud To Silence Whistle-Blower? appeared first on BrokerDealer Blog.

(Bloomberg) — MetLife Inc., the largest U.S. life insurer, said the Financial Industry Regulatory Authority’s staff has indicated the agency will seek a “significant fine” from the company’s broker-dealer unit as part of a probe into possible violations tied to variable annuities.

The company is cooperating in this investigation, MetLife said Thursday in its quarterly regulatory filing. The probe focuses on potential violations “regarding alleged misrepresentations, suitability, and supervision in connection with sales and replacements of variable annuities and certain riders on such annuities,” MetLife said in the filing.

Finra, the brokerage industry’s regulator, is among government watchdogs seeking to guard against abuses in the sale of retirement and savings products in the U.S. The authority told the insurer on Sept. 25 that it would recommend disciplinary action, according to the filing.

“We strongly disagree with the conclusions reached by Finra, and we will defend ourselves vigorously,” John Calagna, a spokesman for the New York-based insurer, said in an e-mailed statement. “MetLife is reserved for this matter.”

The insurer said in the filing that its estimate for reasonably possible legal costs in excess of reserves was as much as $425 million. That compares with an upper range of $410 million at the end of the second quarter.

The post Finra Takes Aim At MetLife BrokerDealer Unit appeared first on BrokerDealer Blog.

The post Goldman Smacked: Finra Fine of $1.8mil re OATS Violation appeared first on BrokerDealer Blog.

Finra’s income for 2014 jumped more than $100 million, as a result of cost-cutting and revenue-generating measures, InvestmentNews reports.

In particular, the industry-funded watchdog doubled money raised through fines, despite a drop in the number of actions, while a voluntary retirement program ate into overall expenses.

Finra’s net income jumped to $129 million in 2014 from $1.7 million in 2013, according to the regulator’s annual report cited by InvestmentNews. Revenue increased from $900.7 million to $996.6 million. In large part, this was due to the $132.6 million collected in fines during 2014, compared to $60.4 million in 2013. While the number of monetary sanctions dropped from 754 in 2013 to 645 in 2014, the average fine soared from $80,100 to $205,600 in the same time period, according to the publication.

Finra also had a 5.8% return in its investment portfolio, which rose from $1.954 billion in 2013 to $2.076 billion in 2014. The regulator attributed this primarily to its fixed-income holdings, according to the newspaper.

Meanwhile, the authority cut its expenses from $998.9 million to $964.8 million from 2013 to 2014. This was helped by 176 employees taking voluntary retirement, according to the report, says InvestmentNews.

Mind you, the number of Finra executives earning $1 million or more went up, from four in 2013 to seven last year. And its member firms each got a $1,200 rebate to offset the regulator’s annual gross-income assessment.

To read the full article, click here. 

The post Finra Fines Bolster BD Regulator’s Finances appeared first on BrokerDealer Blog.

Morgan Stanley was fined $650,000 after Finra found that, from October 2008 to June 2013, three registered representatives in two different branch offices converted a total of about $500,000 from 13 customers by creating fraudulent wire transfer orders and branch checks from the customers’ accounts to third-party accounts. Supervisory failures allowed the conversions to go undetected, Finra said.

Scottrade, which was fined $300,000, didn’t obtain customer confirmations for third-party wire transfers of between $200,000 and $500,000 from October 2011 to October 2013, according to Finra. The agency alleged Scottrade processed transfers totaling about $880 million during that period.

Morgan Stanley, which has around 16,000 brokers and advisers, and Scottrade, which has around 2,000 registered brokers, agreed to the sanctions without admitting or denying the charges.

A spokesman for Scottrade, Whitney Ellis, said in a statement that the firm has resolved the issue after updating its procedures in 2013 and improving the notification process for third-party transfers.

A representative for Scottrade said clients now receive multiple notifications of pending wire transfers, and the appropriate supervisory procedures are in place.

The post Morgan Stanley, Scottrade Settle Insufficient Supervisory Charges appeared first on BrokerDealer Blog.

Below extract is courtesy of FA Magazine

Calling a fiduciary rule for broker-dealers a “must,” Financial Industry Regulatory Authority Chairman and CEO Richard Ketchum laid out model guidelines Wednesday.

Ketchum said the standard is needed because too many brokers are pushing complex financial products on investors without appropriate fee and risk disclosures.

The regulator said a more stringent customer-focused standard for brokers other than suitability is also advisable because some firms continue to approach conflict management on a haphazardly and some fail to adequately discuss potentially higher fees involved in IRAs to permit a customer to make a fully informed decision.

He said the standard should be based on three essential tenets: active identification and management of firms’ conflicts; dramatically improved disclosure of risks associated with the product and product-related fees, firm and third party incentives; and more effective management of the compensation incentives to registered persons.

“The best interest standard should make clear that customer interests come first and that any remaining conflicts must be knowingly consented to by the customer,” said Ketchum.

To protect retail investors from conflicts of interest, the Finra CEO said the rules should require brokers to have an ongoing process to identify conflicts which could be costly to investors and develop written supervisory procedures to address how those conflicts would be eliminated or managed.

Also key to an effective fiduciary standard would be enhanced disclosures through an annual Form ADV-like document annually providing clear, plain English descriptions of conflicts, and all product and administrative fees, said Ketchum.

To continue reading the coverage from FA Magazine, please click here

The post Finra Chief Says This About Broker-Dealer Fiduciary Rules appeared first on BrokerDealer Blog.