Post by jannikki on Nov 12, 2005 10:19:14 GMT -4
SEC; Do they carry malpractice insurance? – November 9, 2004
Dave Patch
Sometime last year, in a speech to the executives of Wall Streets major brokerage firms, SEC Chairman William Donaldson threw down the gauntlet. The Chairman promised the group that the SEC would cut wrongdoers from the industry the way a surgeon cuts disease from a patient. That was last year. This year the surgeon’s patients still suffer from the same diseases. Greed, Fraud, and Regulatory neglect!
According to the Securities Industry Association (SIA), polls regarding the present confidence levels of Wall Street still rate the Industry very poorly. Some 69% of those polled believe that the Industry is motivated by greed, up from 42% only five years ago. As for our “surgeon’s” in Washington, less than 50% of those polled felt that the regulators were doing an adequate job in addressing the Investors concerns.
Maybe the recent settlements can shed some light on the overall issue of accountability.
Morgan Stanley, part of the $1.4 Billion research fraud settlement was once again up against the SEC enforcement division for securities violations. The latest repeat violation: accounting errors. Morgan Stanley had misstated the value of bond holdings by nearly $75 Million. Morgan Stanley was also found at fault for improper expensing of stock-based compensations resulting in the firm having to restate the first three quarters of 2003. To make it a trio, Morgan Stanley also improperly valued their aircrafts in their financials. For this they claimed a lack of liquidity in these aircrafts made the present market values artificially low. Essentially, they could not find aircraft on the market at their needed valuations so they made some up. Their penalty, after three violations of accounting errors in only recent years, a cease and desist order prohibiting them from doing it again. Doing it again? This was strike three! No personal responsibility, no requirements to re-file, no fines to offset the cost of the SEC’s Investigation into the matter. A simple slap on the wrist and promise not to do it again was all they got. Morgan Stanley and Chief Executive Phillip Purcell must have been shaking in their boots with this frightful sanction.
Today, on the AP newswire, Morgan Stanley is now one of several firms alleged to be under regulatory investigation for broker trading practices where they are not offering their clients the best pricing and putting their accounts above the clients. Morgan Stanley is being investigated for placing their financial well being above those clients who they are paid to provide best possible pricing to. They are accused of rigging the game.
Morgan Stanley got the message last year and again this past month. The SEC talks a good game but cutting out wrongdoers like a disease, yea right. Try again.
Then you have Citigroup. Citigroup was also part of the $1.4 Billion research fraud settlement but has recently fallen into the spotlight regarding their Japanese Banking Division. Apparently the Citigroup Division failed to implement safeguards against money laundering, misleading customers about financial risks, and other violations. The result from Japan was to close down the division. That’s right Japan has no problem shutting you down whereby in the US, the premiere financial marketplace, we have regulators who cower to the banks.
This is not the end of Citigroup’s regulatory compliance woes. On Monday October 25, 2004 Citigroup’s Global Markets Division was fine $250K by the NASD for putting out misleading materials on Hedge Funds they work with. It was not merely one or two that slipped through the cracks; it was 106 releases over a one year period between July 2002 and June 2003. I guess their promises of tighter compliance and oversight made in the research settlement were short lived. The NASD fine by the way; far weaker than the typical sanctions imposed on the small business issuers who put out false or misleading information. For Citibank, no top executive was accountable for this continuum of misleading reports.
Today Citigroup is once again being questioned on their integrity as an Investment fund in Brazil is accusing them of interference with their operations. While these claims are merely that at this point, the ethics and integrity of a scandal ridden operation is piling up. Have we surgically cut out this disease called Citigroup fraud yet?
So, where are the SEC Surgeons willing to cut out the disease? Where is the accountability at the executive level for the wrongdoings of a company? Wall Street executives will receive ungodly compensation packages for the bottom line growth of these operations but are never accountable for how those bottom lines are achieved.
In a meeting last week before the Securities Industry Association (SIA), both Chairman Donaldson and National Association of Securities Dealer (NASD) CEO Robert Glauber discussed the need for higher regulatory transparency and higher commitments out of the Industry Members in addressing fraud earlier in the cycle. They called it preventative. This sounds great but will never work unless there is some level of fear instilled into the industry. Fear neither Regulators nor top Executives are willing to instill.
Regulators need to get away from the “Surgeon” mentality and initiate a ‘three-strike you’re out’ policy similar to that of the criminal court systems. Wall Street executives must fear the retribution of banishment from the Industry if they are not acting as champions of ethics, integrity, and compliance. Ultimately, these executives must earn their pay by going beyond the mere bottom line but by how the bottom line is achieved. That can only happen with regulatory spines.
Regulators need to initiate a process of continual escalations in penalties based on more than simply the crime in question but the overall performance of the business operation in general. The lack of a substantial fine to Morgan Stanley on their accounting problems demonstrates the inability for regulators to derive patterns from isolated events. Certainly no enforcement should ever result in No-Fine. You do not stop people from speeding on our highways by handing out warnings. Certainly you do not hand out warnings to member firms that have come across your docket as frequently as these firms have.
Think of it this way. When Chairman Donaldson told the executives of Wall Street that the SEC would act like a surgeon cutting out a disease, what did he expect those executives to do? He expected them to take charge. The fact that many of these same firms are still implicated in significant Wall Street scandals would infer that they did not pass this message down through the rank and file with enough personal emphasis. More likely, they failed to steadily enforce their newly created corporate policies. Either way, top executives are paid to insure the goals of the business are maintained. Regulatory compliance should be one of the foremost goals of Wall Street.
Chairman Donaldson, the patients continue to die of the ill treated diseases based on your team’s surgical skills. It is time you moved on to a different career as your liability to malpractice increases. Maybe a career as a criminal judge with a heavy hand for those habitual offenders would be the better suited role for a top regulatory police agency.
The goal of the SEC should not be to have 1300 enforcement actions annually but to create an environment where the actions taken deter from future occurrences. Today the SEC tallies up enforcement actions like that against Morgan Stanley and call it hard work that succeeded. It is clear those who have lost as the investor side are not satisfied with the results.
Dave Patch
Sometime last year, in a speech to the executives of Wall Streets major brokerage firms, SEC Chairman William Donaldson threw down the gauntlet. The Chairman promised the group that the SEC would cut wrongdoers from the industry the way a surgeon cuts disease from a patient. That was last year. This year the surgeon’s patients still suffer from the same diseases. Greed, Fraud, and Regulatory neglect!
According to the Securities Industry Association (SIA), polls regarding the present confidence levels of Wall Street still rate the Industry very poorly. Some 69% of those polled believe that the Industry is motivated by greed, up from 42% only five years ago. As for our “surgeon’s” in Washington, less than 50% of those polled felt that the regulators were doing an adequate job in addressing the Investors concerns.
Maybe the recent settlements can shed some light on the overall issue of accountability.
Morgan Stanley, part of the $1.4 Billion research fraud settlement was once again up against the SEC enforcement division for securities violations. The latest repeat violation: accounting errors. Morgan Stanley had misstated the value of bond holdings by nearly $75 Million. Morgan Stanley was also found at fault for improper expensing of stock-based compensations resulting in the firm having to restate the first three quarters of 2003. To make it a trio, Morgan Stanley also improperly valued their aircrafts in their financials. For this they claimed a lack of liquidity in these aircrafts made the present market values artificially low. Essentially, they could not find aircraft on the market at their needed valuations so they made some up. Their penalty, after three violations of accounting errors in only recent years, a cease and desist order prohibiting them from doing it again. Doing it again? This was strike three! No personal responsibility, no requirements to re-file, no fines to offset the cost of the SEC’s Investigation into the matter. A simple slap on the wrist and promise not to do it again was all they got. Morgan Stanley and Chief Executive Phillip Purcell must have been shaking in their boots with this frightful sanction.
Today, on the AP newswire, Morgan Stanley is now one of several firms alleged to be under regulatory investigation for broker trading practices where they are not offering their clients the best pricing and putting their accounts above the clients. Morgan Stanley is being investigated for placing their financial well being above those clients who they are paid to provide best possible pricing to. They are accused of rigging the game.
Morgan Stanley got the message last year and again this past month. The SEC talks a good game but cutting out wrongdoers like a disease, yea right. Try again.
Then you have Citigroup. Citigroup was also part of the $1.4 Billion research fraud settlement but has recently fallen into the spotlight regarding their Japanese Banking Division. Apparently the Citigroup Division failed to implement safeguards against money laundering, misleading customers about financial risks, and other violations. The result from Japan was to close down the division. That’s right Japan has no problem shutting you down whereby in the US, the premiere financial marketplace, we have regulators who cower to the banks.
This is not the end of Citigroup’s regulatory compliance woes. On Monday October 25, 2004 Citigroup’s Global Markets Division was fine $250K by the NASD for putting out misleading materials on Hedge Funds they work with. It was not merely one or two that slipped through the cracks; it was 106 releases over a one year period between July 2002 and June 2003. I guess their promises of tighter compliance and oversight made in the research settlement were short lived. The NASD fine by the way; far weaker than the typical sanctions imposed on the small business issuers who put out false or misleading information. For Citibank, no top executive was accountable for this continuum of misleading reports.
Today Citigroup is once again being questioned on their integrity as an Investment fund in Brazil is accusing them of interference with their operations. While these claims are merely that at this point, the ethics and integrity of a scandal ridden operation is piling up. Have we surgically cut out this disease called Citigroup fraud yet?
So, where are the SEC Surgeons willing to cut out the disease? Where is the accountability at the executive level for the wrongdoings of a company? Wall Street executives will receive ungodly compensation packages for the bottom line growth of these operations but are never accountable for how those bottom lines are achieved.
In a meeting last week before the Securities Industry Association (SIA), both Chairman Donaldson and National Association of Securities Dealer (NASD) CEO Robert Glauber discussed the need for higher regulatory transparency and higher commitments out of the Industry Members in addressing fraud earlier in the cycle. They called it preventative. This sounds great but will never work unless there is some level of fear instilled into the industry. Fear neither Regulators nor top Executives are willing to instill.
Regulators need to get away from the “Surgeon” mentality and initiate a ‘three-strike you’re out’ policy similar to that of the criminal court systems. Wall Street executives must fear the retribution of banishment from the Industry if they are not acting as champions of ethics, integrity, and compliance. Ultimately, these executives must earn their pay by going beyond the mere bottom line but by how the bottom line is achieved. That can only happen with regulatory spines.
Regulators need to initiate a process of continual escalations in penalties based on more than simply the crime in question but the overall performance of the business operation in general. The lack of a substantial fine to Morgan Stanley on their accounting problems demonstrates the inability for regulators to derive patterns from isolated events. Certainly no enforcement should ever result in No-Fine. You do not stop people from speeding on our highways by handing out warnings. Certainly you do not hand out warnings to member firms that have come across your docket as frequently as these firms have.
Think of it this way. When Chairman Donaldson told the executives of Wall Street that the SEC would act like a surgeon cutting out a disease, what did he expect those executives to do? He expected them to take charge. The fact that many of these same firms are still implicated in significant Wall Street scandals would infer that they did not pass this message down through the rank and file with enough personal emphasis. More likely, they failed to steadily enforce their newly created corporate policies. Either way, top executives are paid to insure the goals of the business are maintained. Regulatory compliance should be one of the foremost goals of Wall Street.
Chairman Donaldson, the patients continue to die of the ill treated diseases based on your team’s surgical skills. It is time you moved on to a different career as your liability to malpractice increases. Maybe a career as a criminal judge with a heavy hand for those habitual offenders would be the better suited role for a top regulatory police agency.
The goal of the SEC should not be to have 1300 enforcement actions annually but to create an environment where the actions taken deter from future occurrences. Today the SEC tallies up enforcement actions like that against Morgan Stanley and call it hard work that succeeded. It is clear those who have lost as the investor side are not satisfied with the results.