Veteran Wall Street journalist Dan Jamieson recently shed light on yet another troubling example of the impotency of Wall Street’s regulatory system. Jamieson called our attention to the industry’s double-standard when it comes to regulatory matters involving employers/firms versus employees/registered persons.
In Goldman, Stanford Highlight Disclosure Problems, Some Say (InvestmentNews May, 2, 2010) Jamieson reports that:
The SEC’s lawsuit against Goldman Sachs’ broker-dealer unit and recent revelations about fraud at Stanford Financial Group show how weaknesses in the disciplinary reporting system allow serious problems at firms to go unreported, according to some in the industry.
They also highlight the fact that firms and brokers are held to a different standard, which is “patently unfair,” according to Bill Singer, a shareholder in the law firm Stark & Stark. Investors can be harmed by having less information about firms than they have about brokers, he said.
When the Securities and Exchange Commission announced fraud charges against The Goldman Sachs Group Inc. last month over the structuring and marketing of a synthetic mortgage bond, the firm took heat for not disclosing that it had received a Wells notice last June. A Wells notice is a formal warning from a regulator that it intends to file charges.
Goldman Sachs brushed aside the criticisms, saying that it is up to the firm to decide whether proposed charges warrant disclosure, based on whether they constitute material information that could affect the publicly held firm’s stock price. . . .
For years, I have complained about the disparate (and preferential) treatment afforded to self-regulatory organization (SRO) member firms by their regulator. Those member firms have the exclusive right to vote on SRO rule proposals and for elective offices, which gives them significant influence over the rule-making process and the direction of the SRO’s regulatory policies. Contrast that influential member firm role with that of the the hundreds of thousands of registered persons employed by those same member firms — no vote whatsoever is granted to any registered person. Those who do Wall Street’s work are denied the vote on any rule proposal or elective office.
Why is all the power solely vested in the member firms but none with the men and women of the industry?
To read the rest of Bill Singer’s commentary on the this topic, follow the link to the Broke and Broker blog.