Amerivet Securities Inc. has filed a complaint suing the Financial Industry Regulatory Authority. The brokerage firm wants to figure out whether the self-regulatory organization’s failed to regulate large financial institutions and took part in “reckless” investment strategies. In the District of Columbia superior court, Amerivet Securities argued that it needed access to the SRO’s records and books to determine whether misconduct did occur, resulting in investment losses last year and certain executive compensation practices within FINRA. In a letter dated July 31, FINRA refused to turn over the documents.
Amerivet says that between 2005 and 2008 FINRA failed to supervise and regulate Lehman Bros. Inc., Bear Stearns & Co., Bernard L. Madoff Investment Securities Inc., Merrill Lynch & Co., Stanford Financial Group, Sky Capital Holdings LLC., and its other larger member firms. The brokerage firm is also accusing FINRA of recklessly pursuing investment strategies that were extremely risky and not appropriate for the “preservation of capital.” The SRO’s purchase of $862 million in auction-rate securities was one risky venture that the plaintiff cited as an example. In 2008, FINRA reported losses the equivalent of 26.5% of its investment portfolio-that’s $568 million.
Amerivet says it believes that FINRA invested with Bernard Madoff and either suffered losses or may have “clawback” claims related to their investments with him. The plaintiff says that if FINRA had been doing its job properly, the SRO would have exposed and stopped Madoff’s ponzi scam rather than becoming one of its victims.
Amerivet says that FINRA, like NASD, overpays its senior executives. For example, after NASD and NYSE Regulation Inc. merged to become FINRA in 2007, NASD chairperson Mary Schapiro’s income allegedly increased by 57%.
Amerivet made its claim per Section 220 of the Delaware General Corporation Law.
Amerivet Complaint Against FINRA Alleges Madoff Investment, NoQuarterUSA.net, August 25, 2009
Read the Complaint (PDF)
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