Post by jannikki on Nov 12, 2005 10:50:59 GMT -4
Investor Friend or Foe; SEC Commissioner Annette Nazareth derails SRO Enforcement Activities – September 15, 2005
David Patch
Say it ain’t so.
Tell me the top regulator to our Securities Markets didn’t interfere with the enforcement actions of a Self Regulatory Agency (SRO) to protect the illegal acts of Wall Street Institutions.
As reported by the Associated Press yesterday, it now appears that in 2001 Securities and Exchange Commission Director of Market Regulation Annette Nazareth contacted the NYSE and requested that the SRO not bring enforcement actions against a dozen Wall Street Institutions for violations of the document retention laws.
According to the AP story, Salvatore Pallante, former Executive VP of the NYSE, testified this year in an SEC Administrative case against a Wall Street firm that Nazareth asked the NYSE to stop reporting e-mail and record retention violations to the NYSE enforcement division. The SEC also asked the NYSE to withdraw reports made while the SEC was in discussions with the industry.
Ironically, report of this incident came from the SEC’s public records office. An office required by law to maintain records.
If Annette Nazareth had her way this news of interference would have been shredded along with all other evidence of regulatory interference.
Beyond the issues of the SEC strong-arming the SRO’s and Market’s comes the timing of Ms. Nazareth’s actions.
It was in 2001 that NY Attorney General Eliot Spitzer was using the evidence of Wall Street e-mails retained by the firms to make his case against the Industry for research analyst’s conflicts of interest. The result of Mr. Spitzer’s findings was the largest Global Settlement [$1.4 Billion] in the history of the market place. Spitzer was also able to demonstrate the callous and ineffective regulatory performance of the Securities and Exchange Commission in his investigation and settlement.
But how critical is record retention anyway?
It was in December 2001 that Martha Stewart sold those infamous shares of Imclone through her broker Peter Bacanovic. The SEC, in 2002, later charged Stewart with insider trading. In her defense Stewart claimed to have a standing stop loss order in place should Imclone shares drop below a magical number. Her defense later being rejected by all accounts due to a lack of documented evidence to support her claims. Evidence Ms. Nazareth was about to allow to be shredded.
It was less than a year later that the SEC, NASD and NYSE brought enforcement cases against 5 firms for this same retention violation with fines totaling a whopping $8.25 million. The timeliness of such actions so quickly after the initial NYSE enforcement cases were dismissed raise questions and doubt over the authority and objectiveness of Director Nazareth’s initial call.
When asked to comment about whether it was common practice for the SEC to interject their opinion regarding an SRO enforcement proceeding SEC Spokesman John Heine elected to respond with his patented “no comment.” Likewise when asked whether the NYSE routinely took enforcement advice from the SEC after finding of infractions had been identified NYSE spokesman Brendan Intindola provided a similar “no comment”. Intindola would later reference the enforcement actions taken since the Nazareth incident as an indication of the NYSE fulfilling their regulatory duties. Calls to the investor education department of the SEC yielded little by way of informative conversation as well as a clueless Susan Wynerko suggested I speak with an outside Attorney about the SEC’s authority to derail SRO enforcement proceedings. Ms. Wynerko toggled so frequently between the “no comment” and look elsewhere comments I thought I would have to seek a doctor to correct my whiplash problems. Investor education? It was clear this federal Employee was either ignorant or trying to hide something.
Neither the SEC nor the NYSE would comment on whether Nazareth, working out of the SEC facilities to make this call, would be considered a representative of the Commission when derailing the enforcement actions. Mr. Heine once being forthright enough to inform me that it is illegal to use Federal phones for non-business purposes.
In the AP article the spin out of the SEC at the hearing in which Pallante’s testimony was recorded was the argument that the commission did not engage in misconduct and that the SEC staff opinions aren’t the same as the views of the five-member commission. I guess this further question the authority of Director Nazareth to use her office to direct such a change out of the NYSE when the five-member commission did not sanction the derailment of the enforcement actions.
For the record: The case against Raymond James was ruled upon by the SEC administrative Judge today and in that ruling Raymnd James was found not guilty of the record retention problems. The SEC Administrative Judge clearly using Nazareth’s prior actions as justification to that ruling stating “"it would be patently unfair and unacceptable in view of the senior staff's actions and representations to find that Raymond James did not take steps to comply,"
Had this been the first or the last time Ms. Nazareth jeopardized the safety of the investing public her error could be forgiven. Unfortunately this seems to be more a pattern for the recently anointed Commissioner and only raises more doubts about her qualifications for the role.
Case in point.
On record at the SEC is a reform package called Regulation SHO. A package put together by Ms. Nazareth and her staff in the Division of Market Regulation. Also on record are the numerous comment letters provided to the SEC by issuers, investors, State Regulators, and SRO’s on how to properly achieve a high level of investor protection against the abuses of illegal short selling.
The SEC Division of Market Regulation, under Nazareth’s leadership, ignored much of the concerns raised by these various agencies and individuals and instead created policy that jeopardize those already injured while protecting those that participated in the acts of fraud and manipulation. In the release of Regulation SHO the SEC created a ‘grandfather clause’ that protected Wall Street firms from the financial liabilities of the excessive unsettled trades that have become injurious to our small business enterprises, local communities, and investors.
Review of the comment letters for this rule change identifies the significant number of private meetings between members of Wall Street and the SEC Division of Market Regulation to better understand the impact of such proposed changes on their business practices. These meeting are recorded as taking place without meeting minutes presented. What is not recorded, as taking place are the similar meetings with SRO’s NASAA, or Issuers to understand their concerns regarding the proposed rule changes. These are not recorded due to the fact they never happened.
Public comments by Annette Nazareth regarding investor and issuer discontent over the final rule change were cavalier and inappropriate. Nazareth, in a NY times Article dismissed the arguments of the injured parties as simply being disgruntled people disappointed the change did not make the stock prices go up. The fact that the ‘grandfather clause’ is illegal by the standards of law defined under the Securities exchange Act of 1934, and the fact that the clause was intended to protect the liability of the Wall Street firms who lobbied the Division of Market Regulation was never discussed by Nazareth.
The actions of Ms. Nazareth are both documented and highly transparent. Her views of the responsibilities of the agency are not aligned with the agencies charter as defined by Congress. Having a Commissioner in Office who is more concerned about the protectionism of the Wall Street firms over protecting the safety of the investing public is simply a train wreck waiting to happen. Investor Confidence is already at a fragile state and the blunders such as these raise concerns about the agency and the SRO’s ability to enforce our laws.
In December 2004 a Bear Stearns Conference Call regarding Regulation SHO opened with the Bear Stearns General Counsel stating:
"To give you that brief introduction in Reg SHO, the history (of) how we got to where we are today. For the past few years we have been hearing from many different regulators regarding their concerns about the increase in the level of fails that they are seeing. They believe, and they have stated on numerous occasions, that one of the primary causes of the high level of fails was that various participants in the short sale process, prime brokers, executing brokers, clients, were not following already established rules."
The concern now is, was it the SEC’s Division of Market Regulation that Bear Stearns is referencing in this dialogue?
The Senate is presently questioning John Roberts’s integrity to be nominated as Chief Justice of the Supreme Court. Concerns over how his decisions will impact our nation for years to come are what prompt this concern. It was only recently that the Senate nominated Annette Nazareth for the position of Commissioner to the SEC. It is clear that this may have been in haste as the decisions Nazareth has made in the past and will make in the future will impact the securities Industry and can have a significant impact on the stability of our economy for years to come.
It is my personal recommendation that Nazareth resign from the Commission for the safety of our Markets. If Ms. Nazareth chooses not to, the Senate Banking Committee must review these actions taken by Ms. Nazareth and decide whether she not only overstepped her authorities and in doing so aided Wall Street in acts of Securities violations. The Administrative Judges ruling in the Raymond James proceeding today clearly demonstrates the callous nature of Ms. Nazareth’s activities.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005
David Patch
Say it ain’t so.
Tell me the top regulator to our Securities Markets didn’t interfere with the enforcement actions of a Self Regulatory Agency (SRO) to protect the illegal acts of Wall Street Institutions.
As reported by the Associated Press yesterday, it now appears that in 2001 Securities and Exchange Commission Director of Market Regulation Annette Nazareth contacted the NYSE and requested that the SRO not bring enforcement actions against a dozen Wall Street Institutions for violations of the document retention laws.
According to the AP story, Salvatore Pallante, former Executive VP of the NYSE, testified this year in an SEC Administrative case against a Wall Street firm that Nazareth asked the NYSE to stop reporting e-mail and record retention violations to the NYSE enforcement division. The SEC also asked the NYSE to withdraw reports made while the SEC was in discussions with the industry.
Ironically, report of this incident came from the SEC’s public records office. An office required by law to maintain records.
If Annette Nazareth had her way this news of interference would have been shredded along with all other evidence of regulatory interference.
Beyond the issues of the SEC strong-arming the SRO’s and Market’s comes the timing of Ms. Nazareth’s actions.
It was in 2001 that NY Attorney General Eliot Spitzer was using the evidence of Wall Street e-mails retained by the firms to make his case against the Industry for research analyst’s conflicts of interest. The result of Mr. Spitzer’s findings was the largest Global Settlement [$1.4 Billion] in the history of the market place. Spitzer was also able to demonstrate the callous and ineffective regulatory performance of the Securities and Exchange Commission in his investigation and settlement.
But how critical is record retention anyway?
It was in December 2001 that Martha Stewart sold those infamous shares of Imclone through her broker Peter Bacanovic. The SEC, in 2002, later charged Stewart with insider trading. In her defense Stewart claimed to have a standing stop loss order in place should Imclone shares drop below a magical number. Her defense later being rejected by all accounts due to a lack of documented evidence to support her claims. Evidence Ms. Nazareth was about to allow to be shredded.
It was less than a year later that the SEC, NASD and NYSE brought enforcement cases against 5 firms for this same retention violation with fines totaling a whopping $8.25 million. The timeliness of such actions so quickly after the initial NYSE enforcement cases were dismissed raise questions and doubt over the authority and objectiveness of Director Nazareth’s initial call.
When asked to comment about whether it was common practice for the SEC to interject their opinion regarding an SRO enforcement proceeding SEC Spokesman John Heine elected to respond with his patented “no comment.” Likewise when asked whether the NYSE routinely took enforcement advice from the SEC after finding of infractions had been identified NYSE spokesman Brendan Intindola provided a similar “no comment”. Intindola would later reference the enforcement actions taken since the Nazareth incident as an indication of the NYSE fulfilling their regulatory duties. Calls to the investor education department of the SEC yielded little by way of informative conversation as well as a clueless Susan Wynerko suggested I speak with an outside Attorney about the SEC’s authority to derail SRO enforcement proceedings. Ms. Wynerko toggled so frequently between the “no comment” and look elsewhere comments I thought I would have to seek a doctor to correct my whiplash problems. Investor education? It was clear this federal Employee was either ignorant or trying to hide something.
Neither the SEC nor the NYSE would comment on whether Nazareth, working out of the SEC facilities to make this call, would be considered a representative of the Commission when derailing the enforcement actions. Mr. Heine once being forthright enough to inform me that it is illegal to use Federal phones for non-business purposes.
In the AP article the spin out of the SEC at the hearing in which Pallante’s testimony was recorded was the argument that the commission did not engage in misconduct and that the SEC staff opinions aren’t the same as the views of the five-member commission. I guess this further question the authority of Director Nazareth to use her office to direct such a change out of the NYSE when the five-member commission did not sanction the derailment of the enforcement actions.
For the record: The case against Raymond James was ruled upon by the SEC administrative Judge today and in that ruling Raymnd James was found not guilty of the record retention problems. The SEC Administrative Judge clearly using Nazareth’s prior actions as justification to that ruling stating “"it would be patently unfair and unacceptable in view of the senior staff's actions and representations to find that Raymond James did not take steps to comply,"
Had this been the first or the last time Ms. Nazareth jeopardized the safety of the investing public her error could be forgiven. Unfortunately this seems to be more a pattern for the recently anointed Commissioner and only raises more doubts about her qualifications for the role.
Case in point.
On record at the SEC is a reform package called Regulation SHO. A package put together by Ms. Nazareth and her staff in the Division of Market Regulation. Also on record are the numerous comment letters provided to the SEC by issuers, investors, State Regulators, and SRO’s on how to properly achieve a high level of investor protection against the abuses of illegal short selling.
The SEC Division of Market Regulation, under Nazareth’s leadership, ignored much of the concerns raised by these various agencies and individuals and instead created policy that jeopardize those already injured while protecting those that participated in the acts of fraud and manipulation. In the release of Regulation SHO the SEC created a ‘grandfather clause’ that protected Wall Street firms from the financial liabilities of the excessive unsettled trades that have become injurious to our small business enterprises, local communities, and investors.
Review of the comment letters for this rule change identifies the significant number of private meetings between members of Wall Street and the SEC Division of Market Regulation to better understand the impact of such proposed changes on their business practices. These meeting are recorded as taking place without meeting minutes presented. What is not recorded, as taking place are the similar meetings with SRO’s NASAA, or Issuers to understand their concerns regarding the proposed rule changes. These are not recorded due to the fact they never happened.
Public comments by Annette Nazareth regarding investor and issuer discontent over the final rule change were cavalier and inappropriate. Nazareth, in a NY times Article dismissed the arguments of the injured parties as simply being disgruntled people disappointed the change did not make the stock prices go up. The fact that the ‘grandfather clause’ is illegal by the standards of law defined under the Securities exchange Act of 1934, and the fact that the clause was intended to protect the liability of the Wall Street firms who lobbied the Division of Market Regulation was never discussed by Nazareth.
The actions of Ms. Nazareth are both documented and highly transparent. Her views of the responsibilities of the agency are not aligned with the agencies charter as defined by Congress. Having a Commissioner in Office who is more concerned about the protectionism of the Wall Street firms over protecting the safety of the investing public is simply a train wreck waiting to happen. Investor Confidence is already at a fragile state and the blunders such as these raise concerns about the agency and the SRO’s ability to enforce our laws.
In December 2004 a Bear Stearns Conference Call regarding Regulation SHO opened with the Bear Stearns General Counsel stating:
"To give you that brief introduction in Reg SHO, the history (of) how we got to where we are today. For the past few years we have been hearing from many different regulators regarding their concerns about the increase in the level of fails that they are seeing. They believe, and they have stated on numerous occasions, that one of the primary causes of the high level of fails was that various participants in the short sale process, prime brokers, executing brokers, clients, were not following already established rules."
The concern now is, was it the SEC’s Division of Market Regulation that Bear Stearns is referencing in this dialogue?
The Senate is presently questioning John Roberts’s integrity to be nominated as Chief Justice of the Supreme Court. Concerns over how his decisions will impact our nation for years to come are what prompt this concern. It was only recently that the Senate nominated Annette Nazareth for the position of Commissioner to the SEC. It is clear that this may have been in haste as the decisions Nazareth has made in the past and will make in the future will impact the securities Industry and can have a significant impact on the stability of our economy for years to come.
It is my personal recommendation that Nazareth resign from the Commission for the safety of our Markets. If Ms. Nazareth chooses not to, the Senate Banking Committee must review these actions taken by Ms. Nazareth and decide whether she not only overstepped her authorities and in doing so aided Wall Street in acts of Securities violations. The Administrative Judges ruling in the Raymond James proceeding today clearly demonstrates the callous nature of Ms. Nazareth’s activities.
For more on this issue please visit the Host site at www.investigatethesec.com .
Copyright 2005