You don’t often hear about regulated entities calling on a regulator to be more open and transparent about its oversight activities. Yet that’s exactly what happened last week at the 2010 annual meeting of the Financial Industry Regulatory Authority (FINRA), a private self-regulatory organization that oversees more than 4,500 broker-dealers operating in the U.S.
Earlier this year, POGO sent a letter to Congress calling for greater oversight of FINRA and other self-regulatory organizations (SROs). We raised concerns about FINRA’s weak enforcement record leading up to the financial crisis, its failure to crack down on the Madoff and Stanford Ponzi schemes, the lack of disclosure on its private investments, its lavish executive compensation packages, its incestuous relationship with the securities industry it oversees, and more.
After we sent our letter, we heard from the heads of many firms that are regulated by FINRA. Nearly everyone was outraged by the compensation packages approved for FINRA’s executives (in 2008, a year in which the financial system nearly collapsed and FINRA lost $568 million in its investment portfolio, FINRA’s top 20 executives received nearly $30 million in salaries and bonuses). We also learned that a number of FINRA’s member firms had filed a lawsuit alleging that current and former FINRA executives—including SEC Chairman Mary Schapiro—made highly misleading statements about the regulatory merger that led to FINRA’s creation in 2007.
U.S. District Judge Jed Rakoff recently decided to dismiss the lawsuit against Schapiro and other officials. But that hasn’t stopped FINRA’s member firms from pushing for more transparency and accountability.
Lt. Col. Elton Johnson, Jr. is the president of Amerivet Securities, a small California-based brokerage firm that is regulated by FINRA. In anticipation of FINRA’s annual meeting, Johnson submitted seven proposals for opening up FINRA’s records and holding the organization accountable: