It’s all over the news, at least that section of the web that I frequent, that FINRA employees changed documents before handing them over to the SEC.  The Reuters story by Suzanne Barlyn and Sara Lynch can be found here.

My firm and I have done document productions to FINRA in the past.  They frequently require “certified” copies of documents from my clients.  Sometimes they require “certified” copies of documents that we obtain from another branch of FINRA.  Apparently, my clients and my firm can’t be trusted to not alter documents.

But FINRA production to the SEC?  Apparently that’s exempt from notions of honesty and fair play.  But even more ironic is the penalty.  FINRA has to hire a consultant and take steps to improve its practices.  If one of my clients altered documents before sending them to FINRA, the discovery would likely result in my client’s permanent suspension from the securities industry.  I have seen draconian responses to much less.

Is it any wonder that the public does not trust our current regulatory system.  Bernie Madoff made the SEC look bad.  FINRA is altering documents that should have been innocuous.  And nothing significant happened other than more lawyers gained employment.

On the other hand, I had a client who changed some customers’ phone numbers in the firm’s database.  That client was suspended from the industry and will have a permanent CRD mark.  Does that seem fair?

 

 

 

 

 

 

This concept has always fascinated me. A company such as Citigroup pays a huge fine but says “we didn’t do anything wrong.”

In this case, Citigroup agreed to pay the fine for allegedly piecing together a sweetheart transaction where it made money no matter which way the market went.  Here’s how it goes — Citigroup took a bunch of really crappy mortgages and put them together in a shiny box called “Class V Funding III”.  This shiny box was “diversified” among lots of crappy mortgages.  I guess the theory was if you put enough crap in one investment it magically smells less like a pile of crap.

So, of course, on the front end Citigroup makes money foisting this shiny box of crap on institutional investors (who should have known better, by the way).  Citigroup made $34,000,000 dollars polishing crap and making it look and smell pretty.  (Mythbusters did an episode where they polished crap and made it shiny.  Maybe that was inspiration.)  But Citigroup wasn’t alone, they had help from Credit Suisse in picking which crap to go into the shiny box.

What Citigroup didn’t tell the 14 institutional investors (who should have known better) was that their institutional trading desk was taking a short position against the very pieces of crap in the shiny box.  Within months of taking possession of the shiny box, it started to lose its sheen and shimmer and started to smell like its contents.  But Citigroup didn’t need to worry, because it made money on structuring the deal and took investment positions to profit when the deal fell apart.

According to the SEC, Citigroup made $160,000,000 on the transaction, first creating the shiny box then betting against it.  The fine paid includes the $160,000,000 plus interest plus penalties.  I wonder if the traders who made bonuses when this deal paid off handsomely got to keep them.

I love this business.  That’s the amused view of one Lawyer from Jupiter, Florida.