Finra’s indie board members slammed for apparent about-face

Three reformist small-firm governors elected to the board of the Financial Industry Regulatory Authority Inc. in August already are facing some heat.

Three reformist small-firm governors elected to the board of the Financial Industry Regulatory Authority Inc. in August already are facing some heat.
In an e-mail sent earlier this month to member firms, the three governors, who successfully challenged candidates picked by a Finra nominating committee, said they now support Finra’s decision last month to reject four of seven transparency-related proxy proposals.
“We support this decision [and] believe that action on the remaining four proxy proposals was not warranted,” the three board members, Jed Bandes, Joel Blumenschein and Ken Norensberg, wrote in the e-mail.
The proxy proposals were submitted by activist firm Amerivet Securities Inc.
“Going by their campaign promises [to support all the proxy positions], they’ve failed miserably,” said Alan Davidson, founder of Zeus Securities Inc., and a member of Finra’s National Adjudicatory Council, who also runs the Independent Broker-Dealer Association, a group of about 250 small firms.
John Busacca, owner of the Broker Dealer Exchange LLC and one of the founders of the Securities Industry Professional Association, said SIPA members are upset over the e-mail.
“I’m getting flamed” for having supported the three independent candidates, he said.
The board members’ e-mail gave the “same explanation [Finra] put in its proxy” urging members to vote against all seven proposals, Mr. Busacca said. InvestmentNews has learned, however, that the final version of the e-mail was actually edited by Finra staff, not the board members.
The Finra board rejected proposals to give member firms a say-on-pay vote, release an IRS opinion letter concerning the $35,000 paid to firms following the 2007 NYSE merger, conduct an inquiry into any potential involvement by Finra officers with Bernard Madoff’s firms and create an independent inspector general for Finra.
Finra’s board did agree to take action in response to three of the proposals, by disclosing executive compensation in its annual report, disclosing the investment managers it uses and communicating some of its board actions.
“I’d probably feel the same way, if I didn’t know what was being done behind the scenes,” said Mr. Bandes, president of Mutual Trust Company of America Securities Inc.
“I think we got a great victory on the proxy thing,” he said. “It’s not 100% of what members wanted, but it’s a lot.”
He stressed that the three small-firm representatives, a small minority on the 22-person Finra board, have been to just one board meeting so far, and that changing an organization like Finra will take time.
The new board members are probably “looking to show [the Finra board] that they’re reasonable, that they’re not bomb throwers,” Mr. Busacca said.
“If there’s an issue that bothers me a lot, I’ll speak my mind,” Mr. Bandes said, “and so will the other two” small-firm representatives.
Mr. Blumenschein is president of Freedom Investors Corp., and Mr. Norensberg is managing director of Luxor Financial Group Inc.