Brokerages Doubling as Money Managers Facing Finra Scrutiny
Brokerages Doubling as Money Managers Facing Finra Scrutiny
By Jesse Westbrook
Jan. 22 (Bloomberg) -- U.S. brokerages that also manage money for clients are facing additional scrutiny by industry regulators after investigators failed to spot Bernard Madoff’s use of such a company to operate an alleged $50 billion fraud.
The Financial Industry Regulatory Authority sent information requests asking firms whether they also run investment advisers or hedge funds within their brokerages, Finra spokesman Herb Perone said in an interview today. Finra, which lacks authority over money managers, can make referrals about investment advisers to the Securities and Exchange Commission, he said.
“In light of recent developments, Finra is verifying with selected firms the level and scope of investment-adviser and hedge-fund business being done in conjunction with the broker dealer,” Perone said.
The SEC has come under fire from lawmakers for missing Madoff’s alleged Ponzi scheme even though press reports and tipsters questioned his investment returns. Finra Chief Executive Officer Mary Schapiro, President Barack Obama’s nominee to lead the SEC, has also faced questions from members of Congress about why her organization failed to detect Madoff’s scheme.
Bernard L. Madoff Investment Securities LLC was registered with regulators as both a brokerage and a money manager. Schapiro, in Jan. 15 testimony before the Senate Banking Committee, said Finra received no warnings that Madoff’s business was a fraud and the SEC didn’t share tips it received.
Washington-based Finra, an industry self-regulator that oversees more than 5,000 U.S. brokerages, has received and investigated 19 complaints about Madoff’s firm since 1999, Perone said. All of them related to “trade-execution issues” on the brokerage side of his business, Perone said.
To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.
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