Finra, the main regulatory body for the US brokerage industry, issued a mea culpa on Friday in the wake of an internal report that found the agency repeatedly failed to investigate tips about accused Ponzi schemer Sir Allen Stanford and convicted Ponzi schemer Bernard Madoff.
Among other findings, the report said Finra’s staff were “not adequately trained” in the conduct of investigations and that the regulator lacked procedures to bring cases to senior management or special investigators “based on the gravity and substance of the fraud allegations”.
In a statement that managed to be both contrite and self-congratulatory, Finra’s chief executive officer Richard Ketchum (oh, the irony) said:
Today’s report by a Special Review Committee of the FINRA Board of Governors is one of a number of significant initiatives undertaken by FINRA in the wake of the Madoff and Stanford scandals to better understand and correct shortcomings in our examination program. As regulators, we owe it to investors – especially those harmed by recent scandals – to develop a better, more comprehensive response to fraud, and I am committed to taking the lessons from the report’s findings to make FINRA even stronger.
Finra said it would create a new “Office of Fraud Detection and Market Intelligence” to “provide rapid response to fraud by a staff with expertise in fraud detection and investigation”.
No word on where they are finding these staff.
The Finra self-flagellation comes after a similar report by the inspector general of the Securities and Exchange Commission into that regulator’s conduct in investigating Sir Allen and Bernard Madoff.
On Stanford, the inspector general found the SEC did not breach its obligations to investigate the Texan businessman’s empire, which stretched from Houston to Antigua via Venezuela and Canada. Sir Allen has denied all the charges against him.
But on Madoff, according to the massive 457-page report filed by the SEC’s inspector, the regulator failed spectacularly.
All of which forces the question – did anyone do their jobs? Anyone?
Related links:
Bernard Madoff – In depth coverage – FT
Sir Allen Stanford – In depth coverage – FT
Jail proving a big headache for Sir Allen – FT Alphaville