Finra-backed candidates who represent large and midsize firms are running unopposed so far in the regulator's upcoming board election, but a battle is brewing for three open small-firm seats.
The three small-firm candidates picked by the nominating committee of the
Financial Industry Regulatory Authority Inc. could face a challenge from five independent candidates who are trying to gather enough signatures to get on the ballot. The board election is set for Aug. 2.
The outside challengers contend that it is important to have board members who are independent of Finra management. But outsider status won't necessarily gain the votes necessary for victory.
The existing Finra board was elected and appointed in November 2007 under transitional rules following the merger of NASD and the regulatory arm of the
New York Stock Exchange. At that time, six of the seven outside challengers were defeated by candidates chosen by the Finra nominating committee.
But much has changed since 2007.
The current challengers maintain that the lack of oversight of the big brokerage firms and miscues by Finra management need to be addressed. They also point to the regulator's failure to detect Bernard Madoff's Ponzi scheme, the alleged fraud by Allen Stanford and the $568 million loss that Finra suffered on its investments in 2008, as further evidence that its staff and management require more accountability.
“Where are the people who are going to question what's going on?” said challenger Joel Blumenschein, president of Freedom Investors Corp., who feels that Finra has gone back on promises to be more open to its membership.
Meanwhile, regulatory burdens have grown, the challengers said.
“The nominated candidates are coming from the [Finra Small Firm Advisory Board] and are responsible for letting a lot of this [regulatory] stuff slip through,” said Jed Bandes, president of Mutual Trust Company of America Securities Inc., another challenger.
He, Mr. Blumenschein and a third challenger, Ken Norensberg, chief executive of Four Points Capital Partners LLC, who is a compliance consultant, have the support of the Securities Industry Professional Association Inc. and the Independent Broker-Dealer Association Inc.
Two other challengers are running on their own: Howard Spindel, a financial principal at A.J. Pace & Co. Inc. and owner of Integrated Management Solutions USA LLC, who is a compliance consultant; and Karen Fischer, financial and operations principal at Hunter Scott Financial LLC, who is also a compliance consultant.
The nominating committee candidates are Mari Buechner, chief executive of Coordinated Capital Securities Inc., Lisa Roth, chief executive of Keystone Capital Corp., and Donald Steel, president of Planned Investment Co. Inc.
CHANGES UNDER FINRA
Prior to the 2007 merger, NASD member firms could nominate and vote for all 22 board seats. Since the creation of Finra, however, a brokerage firm can support and vote for, at most, just three candidates.
Small firms — those with no more than 150 brokers — vote for three small-firm representatives, as do large firms — those with more than 500 brokers. Midsize firms — those with 151 to 499 brokers — vote for one board representative.
Nominating-committee candidates running for the large-firm and midsize seats will run unopposed unless challengers emerge.
The midsize-firm candidate is Dennis Ferguson, executive vice president of Sterne Agee Financial Services Inc. The large-firm candidates are Richard Brueckner, chief executive of Pershing LLC, Seth Waugh, chief executive of
Deutsche Bank Americas, and James Weddle, managing partner at
Edward Jones.
The other 15 seats, which include a majority of non-industry members, are appointed by the Finra nominating committee and aren't subject to a challenge.
The small-firm challengers said that the three representatives chosen by the nominating committee are too close to Finra management, and unwilling to push back.
Not so, Ms. Roth said.
“If anyone thinks the Small Firm Advisory Board is sitting idly by, they're mistaken,” she said.
Both Ms. Buechner and Mr. Steel are ex-officio members of the SFAB, whose job is to communicate with the Finra board on behalf of small firms, Ms. Roth said.
SFAB members have “prevented some significant problems for small firms,” she said, pointing out the delay of a controversial supervisory control rule and pushing successfully to get the Securities and Exchange Commission to rethink a proposal to ban placement agents.
Mr. Steel didn't return phone calls seeking comment.
Ms. Buechner was traveling last week and unavailable for comment. She is also a current Finra board member and chairwoman of the Financial Services Institute Inc.
In a campaign statement, Ms. Buechner said that she has advocated for independent-contractor firms, favors retaining 12(b)-1 fees and calls for better, not more, customer disclosures. She also has lobbied on regulatory reform.
Mr. Steel's statement said that he has been involved in many industry committees and believes strongly in the self-regulatory process. He is also currently on the Finra board.
The outside challengers contend that board members need to do more to ensure that oversight is truly effective, instead of just burdensome.
Regulators are “more concerned if you're missing a paragraph in your [written procedures] than they are in investor protection,” Mr. Norensberg said.
“Finra constantly picks on everybody for technical violations of obscure regulations instead of looking at the big picture,” Mr. Spindel said.
“They're so busy with administrative stuff, they miss a Bernie Madoff,” Ms. Fischer said.
“The only way we can get traction on that board is if we can convince the public board members that we're not all Madoffs, Stanfords and Goldman Sachses,” Mr. Bandes said, referring to high-profile cases that have given the brokerage business a black eye.
E-mail Dan Jamieson at [email protected].
