NEW YORK (Dow Jones)--Thomas Weisel Partners Group (TWPG) has
set aside $4 million to pay an expected fine by the Financial
Industry Regulatory Authority to settle an investigation involving
auction-rate securities, the company said in a regulatory
filing.
The company said it "believes that it has reached an
understanding in principle" with Finra on the fine, which "would
resolve all aspects of the investigation of the company."
The company didn't return a call seeking comment.
In July, the staff of Finra, Wall Street's self-regulatory
organization, recommended disciplinary action against Thomas Weisel
regarding certain activities "involving potential violations of
FINRA and Municipal Securities Rulemaking Board rules and certain
anti-fraud" provisions, according to the 10-K, which was filed
March 12.
Thomas Weisel, a San-Francisco-based investment bank, indicated
in the 10-K that the "regulatory and legal developments related to
auction-rate securities could adversely affect our business,
financial conditions, operations and cash flow."
The auction-rate securities market collapsed about two years
ago, essentially leaving investors stuck with illiquid investments.
Investors, outraged over the misrepresentation of ARS by financial
advisers as low-risk investments, could not sell the securities or
had to take a loss.
Over the past few years, large Wall Street firms, such as
Citigroup Inc. (C) and UBS AG (UBS), pushed by regulators, agreed
to buy back billions of ARS.
Weisel said it didn't underwrite auction rate securities, or
manage the auctions for them, but was an agent for customers buying
the securities. The company also said customers or Finra could
force it to purchase the securities from customers, "although we do
not have sufficient regulatory capital nor do we have cash or
borrowing capacity to repurchase all of the ARS held by those
customers." Weisel said it's exploring potential solutions.
The $4 million fine is a comparatively large amount for Finra.
Matt Farley, partner at law firm Drinker Biddle & Reath, said
he's observed that big fines by Finra, instead of restitution, can
mean the regulator was troubled by what it found during the Thomas
Weisel investigation.
Jacob Zamansky of Zamansky & Associates said "it is a
significant fine for a small downstream player in the auction-rate
securities market such as Thomas Weisel."
-By Jessica Papini, Dow Jones Newswires; 212-416-2172;
jessica.papini@dowjones.com
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=WSJ: Finra's Susan Merrill To Exit As Enforcement Chief
By Susanne Craig
Of THE WALL STREET JOURNAL
The executive hired by Wall Street to enforce its rules is
stepping down, after nearly three years in which the organization's
disciplinary actions and fines against the brokerage industry have
declined, the group said.
Susan Merrill, head of enforcement at the Financial Industry
Regulatory Authority, Wall Street's self-regulatory body, hasn't
set a departure date nor said if she had another job lined up,
people familiar with the matter said. She didn't reply to requests
for comment.
(This story and related background material will be available on
The Wall Street Journal Web site, WSJ.com.)
Her departure leaves Finra looking for an enforcement chief who
can bolster its reputation and bring more cases. Finra and other
regulators missed some of the major causes of the financial crisis,
as well as some investment frauds.
Ms. Merrill, 53 years old and formerly a litigation partner at
law firm Davis Polk & Wardwell LLP, was hired by the New York
Stock Exchange in 2004 to help revive is regulation division. She
became head of enforcement at Finra in 2007 when the National
Association of Securities Dealers merged with the regulatory arm of
the NYSE, forming Finra.
Ms. Merrill, who made $1.4 million in 2008, was tapped to run
the combined division by Mary Schapiro, who ran Finra until early
2009, when she left to head the Securities and Exchange
Commission.
Ms. Merrill's tenure has met with mixed success. She helped to
successfully merge the enforcement departments of the NASD and
NYSE, and brought a number of auction-rate-securities cases against
Wall Street firms. Last week, Thomas Weisel Partners Group Inc., in
a regulatory filing, disclosed it had set aside $4 million to pay
an expected fine by Finra to settle an investigation involving the
securities.
At the same time, her division has brought fewer cases than its
predecessors did. During her tenure at Finra, the stock market
touched an all-time high. Then, the country tumbled into the
financial crisis.
In 2008, amid the crisis, Finra often filed cases against small
players. Along the way, regulators, including Finra, failed to stop
a number of abuses that led to the financial crisis and didn't
uncover the Ponzi scheme run by Bernard Madoff.
During the past few years, disciplinary actions filed dropped,
to 1,158 cases in 2009 from 1,399 in 2005. Enforcement fines
against firms have, in percentage terms, declined. Finra levied
fines against financial firms totaling $40 million in 2008 and $50
million in 2009, according to a Wall Street Journal analysis.
Fines levied by Finra or one of its predecessor agencies
declined for three years before 2009. The predecessor organization
collected $148.5 million in fines in 2005.
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