As Obama's nominee for SEC chairman -- Mary Schapiro, chief executive of FINRA - gets grilled by the Senate Banking Committee today, a curious point of view from FINRA has emerged. According to Reuters, the Financial Industry Regulatory Authority, which supervises U.S. brokerages, is disavowing any responsibility with regard to the fraud that took place for decades at Madoff Securities.Reuters quotes an email from FINRA that states, "None of the fraudulent activities that have been alleged deal with the activities of the broker-dealer or come under the jurisdiction of FINRA."
To the contrary, points out an excellent blog by attorney Mark J. Astarita, "It is true that FINRA does not have jurisdiction over investment advisers, but Madoff's firm was NOT a registered investment adviser. Madoff ran his entire operation from the broker-dealer. That puts his advisory business under the jurisdiction of FINRA - in fact, running an investment advisory business at a broker-dealer without registration as an investment advisor is a violation of FINRA rules!
"That alleged conduct [Madoff's Ponzi scheme] is directly under FINRA's jurisdiction. FINRA is the primary regulator for the broker-dealer. FINRA is responsible for oversight of its account statements, which the SEC alleges were fraudulent. FINRA is also responsible for reviewing the firm's financial statements. If the customer account statements were fraudulent, the firm's financials were fraudulent, since they incorporate financial information from the customer accounts. In order to produce fraudulent account statements, the firm's back office and clearing operations had fraudulent information."
Although FINRA investigated 19 trading complaints about Madoff's brokerage, none related to the $50 billion fraud perpetrated through it.