Spencer Bachus, the Alabama Republican who is Chairman of the House Committee on Financial Services, recently wrote an Op-Ed in the Wall Street Journal. In the opening statement, Congressman Bachus references Bernie Madoff, Matthew Hutcheson and Mark Spangler, three individuals who have committed investment fraud.
Most people have heard of Bernie Madoff, whose Ponzi scheme stole billions from his clients. Yet, during 16 audits by the SEC and Financial Industry Regulatory Authority (FINRA), neither agency could discover the fraud unfolding right before them. FINRA now claims that although Bernie Madoff was the former chair of its predecessor organization and Bernie Madoff’s broker dealer was audited by FINRA, never once did they notice the Ponzi scheme nor that the company they supposedly audited held billions of dollars in client accounts.
Mathew Hutcheson was a fiduciary on trusts and sold insurance. He was part of the broker-dealer network related to MassMutual. That network reports to both the SEC and FINRA as regulators. Hutcheson is accused of stealing $5 million dollars from clients. Once again, FINRA oversees MassMutual and once again the alleged fraud was not caught by them. The case is famous in that Mathew Hutcheson appeared before Congress urging a fiduciary standard (which despite the alleged fraud) he continues to maintain he abided by.
Mark Spangler was the former head of National Association of Personal Financial Advisors (NAPFA). He diverted approximately $46 million of client funds into entities that he had a personal interest in. He is the one case that was not overseen by FINRA, but was overseen by the SEC.
Congressman Bachus did not mention R. Allen Stanford. His Ponzi scheme came to light just after Madoff’s and as such was overshadowed by the Madoff coverage in the media. Here FINRA investigated Stanford for years as did the SEC. Neither could find that this fraud stole billions from his investors, although both audited them. At least in this case, the Houston office of the SEC suspected fraud and asked the headquarters to follow-up. That is precisely where the SEC dropped the ball, even worse there is no record that FINRA even suspected fraud!
So, although Congressman Bachus is trying to make the case for FINRA to self-regulate the entire financial industry, he is choosing the least competent agency to do so. The same fees that FINRA charges for self-regulation could be used by the SEC to fund regulation of the entire industry, but that is too straight forward for Congress to agree upon!
According to Congressman Spencer’s campaign, he received 44% of donations from PACs and employees related to banks, the insurance industry, financial service firms and venture capitalists. All of these groups are the members of FINRA. When you follow the money, it seems obvious as to why the Congressman so vigorously proposed the same organization to oversee the financial industry.
