Three major banks has settled an insider trading related case with the Financial Industry Regulatory Authority, according to an AP report.
$1 million fine for three banks
In agreeing to pay the $1 million fine each, the banks don’t admit nor deny the charges and key documentation regarding alleged criminal behavior may remain sealed.
The case stems from improper submission of regulatory forms, known as “blue sheets,” used to identify insider trading. Brokerage firms are required to submit information such as customer names and contact information along side details about each transactions.
Banks submitted incorrect information on customer trades, names and contact information in insider trading case
FINRA is alleging that the banks provided incorrect customer names, contact data and trade information. Information about the said customers in this case was withheld.
The AP reported Goldman Sachs Group Inc (NYSE:GS), Merrill Lynch and Barclays PLC (ADR) (NYSE:BCS) all declined to comment on the matter.
FINRA also issued a yet to be resolved complaint against Wedbush Securities for improper submissions of “blue sheet” trading reports. The case with Wedbush Securities is still under consideration by FINRA to determine if the submission was a mistake or involved a more serious obfuscation of insider trading.
Critical of FINRA
In his book In Bed With Wall Street, author Larry Doyle was highly critical of FINRA regulation of large banks and their brokerage affiliates relative to smaller, independent brokerage firms. Doyle goes on to show how the large banks actually control FINRA. He takes apart the mechanisms of the revolving door and shows that FINRA is not subject to a government Freedom of Information Act request. Thus, decisions made by FINRA that may have treated large bank patrons kindly in the past cannot be uncovered.
Doyle maintains that a regulatory agency should always be subject to Freedom of Information Act requests, as this is a principle of sound market structure. With allegations of regulators moving through a revolving door to effectively collect payment for services rendered while working for the US government.
Noting the lack of individual prosecutions, Doyle writes of an SEC / DoJ cooperation:
The effective result of the cooperation between the SEC and DoJ has been a number of fines levied on Wall Street banks with next to no indictments and prosecutions of fraudulent behavior. What is the additional lubricant that greased these wheels? Evidence indicates that the payoff for many legal eagles within the regulatory and judicial offices is a spin through the revolving door to a plum job at a law firm representing major financial clients or within the chief counsel’s office of these institutions.
Doyle then goes on to cite the example of Robert Khuzami, former SEC enforcement director, receiving a $5 million per year law firm deal. Lanny Breuer, the former Department of Justice Criminal Division chief, who was documented on 60 Minutes and Frontline holding back on Wall Street investigations, was reported to have received $4 million per year upon leaving the DoJ.