Three potential small-firm candidates for Finra's board are taking the self-regulatory organization to task for its shaky finances, an alleged “gotcha” enforcement mentality and its controversial move to oversee investment advisers.
The three — Kevin Carreno, part owner and general counsel of International Assets Advisory LLC in Orlando, Fla.; Stephen Kohn, president of Stephen A. Kohn & Associates Ltd. in Lakewood, Colo.; and Dock David Treece, a partner at Treece Financial Services Corp. in Toledo, Ohio — are running for one of the three small-firm seats on the
Financial Industry Regulatory Authority Inc.'s 22-person board.
To get on the ballot, they have to collect signatures by June 25 from 3% of the 4,059 small firms registered with the SRO.
Ballots will go out in July, and votes will be counted at Finra's annual meeting Aug. 13 to determine who will serve a three-year term.
In their race to gather signatures, none of the men is mincing words about the SRO's perceived shortcomings.
Mr. Carreno, for example, last year successfully fended off a Finra case against him and is using that fact to gather support.
“I'm not afraid to take on [Richard G.] Ketchum,” he said of Finra's chief executive.
“I think there is the potential for abuse in the enforcement process, and changes are needed,” such as requiring Finra to file charges within a certain time after warning a target via a Wells notice, Mr. Carreno said.
“The big problem [is] the shift in culture since the merger” between NASD and the
New York Stock Exchange's regulatory unit in 2007, which formed Finra, Mr. Treece said.
“The NASD was abundantly aware of the relationship it had with member firms, and its status as an [SRO],” he said. “Since the merger, they seem to have forgotten who their clients are and who pays their bills.”
Mr. Kohn thinks that the new board member will have to restore respectability to the post after Joel Blumenschein, president of Freedom Investors Corp., resigned the seat this month after settling a failure-to-supervise charge.
“Small firms are not represented, in large degree, with any kind of class” on the board, Mr. Kohn said.
“That credibility and integrity has to be restored,” he said. “I don't want small firms to be [seen as] a joke.”
The aspiring board members also have traded personal barbs.
Mr. Carreno “sounds like he's got a serious ax to grind,” Mr. Treece said. “And as an attorney, I'm not sure how effective he'd be.”
As for Mr. Kohn, “he seems not to recognize there's even a problem at Finra,” Mr. Treece said.
Mr. Kohn, whose campaign literature promises a “steady, evenhanded” approach, said: “The only way to effect change is from the inside.”
“Yelling and screaming does not work,” Mr. Kohn said in an interview.
Mr. Kohn said that Mr. Carreno and Mr. Treece don't have a record of speaking out for small firms, and he pointed to his own service on Finra's National Adjudicatory Council and meetings with the Public Company Accounting Oversight Board to urge exemptions for small broker-dealers.
In response, Mr. Carreno said: “In addition to being a lawyer, I am a principal and part owner of a small firm that is dealing with the ever-increasing cost of regulation.”
What's more, he said, Finra attorneys “review and prepare every proposal that is submitted to the board. Why wouldn't small firms want a representative that can fight them on an equal basis?”
Despite their disagreements, all three see regulation as a huge issue for their small-firm constituency.
“I get examined every two years, and it feels like an enema,” Mr. Treece said.
“All we do is check-and-application business [directly] with mutual funds,” he said. “But Finra wants to see my [anti-money-laundering] procedures and my trade tickets,” even though he handles no customer cash and does not conduct stock trades.
APPROVALS FOR CHANGES
Finra has warned that it continues to lose money due to lower trading volumes and will seek fee increases. But higher fees and the perception that Finra executives are highly paid don't sit well.
“Membership is down 20%, but will they cut personnel 20%?” Mr. Kohn asked. “They continue to tax firms and make it more difficult.”
Mr. Carreno thinks staff salaries are inflated because they were compared with large securities firms.
“If they used data from all member firms, that would bring [salary levels] way down,” Mr. Carreno said.
The three potential candidates suspect Finra is lobbying to take over investment adviser oversight as a way to boost revenue.
“I am opposed to Finra taking on the IA regulation, primarily because it will be financed on the backs of existing ... member firms who will get no benefit,” Mr. Carreno said.
“I would hate to see that happen,” Mr. Treece said. “Not just because I run an [advisory firm] and don't want to have to deal with them. I'd hate to see what kind of mess they'd make in the IA space.”
Mr. Kohn has concerns about how Finra would regulate investment advisers, but also feels that starting up a new SRO for advisers would be financially impractical.
Finra spokeswoman Nancy Condon declined to comment on the election process.
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