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Tuesday, October 19, 2021

FINRA makes sub rosa inquiries on hedge funds, investment advisors

Date: Monday, January 26, 2009
Author: Paul Springer, SF Financial Fraud Examiner

FINRA, the regulator that makes sure brokers and brokerages are obeying the law, has been quietly canvassing brokerages for information relating to affiliate hedge funds or investment advisory practices.

FINRA does not regulate hedge funds and investment advisory firms. These entities are more properly with the purview of the Securities and Exchange Commission. Even so, a major lobbying effort with connections in the White House has pressured lawmakers not to require additional regulation of hedge funds by the SEC or anyone else.  After all, they are so very responsible.

A member of the Bush cabal actually claimed there is a moral hazard in hedge fund regulation

One can only speculate most nebulously on why FINRA is reaching for information beyond its normal scope. Very hush hush and on the QT, some whisper the name of Madoff, or just make the eldritch sign that legend says averts his evil from regulators

In any case, a prestigious law firm with a very deep securities practice has been circulating this message to brokerage client:

We understand that the Financial Industry Regulatory Authority (“FINRA”)  emailed a request to certain broker-dealers requesting the following information: 

1.   Does the firm have an Investment Advisory Business within the Registered broker dealer?
2.   Does the firm have an affiliate that has an Investment Advisory Business?
3.   What does the Investment Advisory business entail?
4.   Does the firm have an Hedge fund business within the Registered broker dealer? 
5.    What does the Hedge Fund business entail?
Responses to this request are due by close of business on Thursday, January 22, 2009.   It is possible that this request may be sent to other firms in the near future and we recommend that you monitor your email for receipt of such a request
Again, one can only speculate. Perhaps FINRA feels it was left out of the SEC's bungled Madoff inquiries in the past. And it does seem like on or two other hedge funds have had some magic moments and beautiful black swans.