Manages Parisian Family Office. Began Wall Street, 82. Founded investment firm, Native American Advisors. Member, White Earth Chippewa Tribe. Was NYSE/FINRA arb. Conservative. Raised on Native reservations. Pureblood, clot-shot free. In a world elevated on a tech-driven dopamine binge, he trades from Ghost Ranch on the Yellowstone River in MT, his TN farm, Pamelot or CASA TULE', his winter camp in Los Cabos, Mexico. Always been, and will always be, an optimist.

Thursday, February 08, 2007

NASD/SEC commentary.........

As part of its 2007 legislative agenda, the North American Securities Administrators Association Inc. is calling for the new Democratic Congress to review the arbitration system. It needs major work, maybe even scrap it. It isn't the arbitrators fault. In my career spanning a decade as an arbitrator for both the NASD and NYSE there wasn't a single arbitrator who I worked with that didn't do a good job in adjudicating any dispute though some were not even remotely aware of how the brokerage industry operates in reality, and some were not aware of the "bad clients" and "bad attorneys" who file suit to try to recover assets after seeing massive investor stupidity. What I find appalling is the situation I found myself in a year or two ago. As the President and Chief Investment Officer of Chippewa Partners, a Registered Investment Advisor, a firm I started in 1995 after having gone to work in the securites business way back in 1982 there was never a time in my life that I was more prepared to be what the arbitration process needed. Someone who knows the industry, has tremendous experience in the industry and having attended law school, can ferret out the facts presented in each case. Low and behold, the NASD came up with a new rule that says any person who is a manager of an RIA firm can NOT be an arbitrator. There reasoning was that many RIA managers are actually owned by broker-dealer firms and hence can not be objective. There's more to it than that and the stench is loud. The industry knows it. There were many arbitrators tossed out of the arbitration pool over that ruling and it probably stems from guys like me holding a fiduciary standard that a firm like Chippewa Partners adheres to.
Now, the there is ever more willingness to allow the brokerage industry to self-adjudicate through mandatory arbitration and control public access to the brokerage industry's criminal and disciplinary histories. The merger between the NYSE and the NASD enforcement divisions is a yawn. Everyone knows that self-regulation involves a conflict of interest. One of the most egregious examples of the fox guarding the henhouse is the Broker-Check program run by the NASD. (NOTE: NASD is the National Association of Securities Dealers, Wall Street itself!) The NASD says it "should be your first resource to learn about the professional background, registration/license status and conduct of NASD-registered firms and their registered brokers." Would you believe that the program does not permit a broker or firm to respond "yes" to the question of whether the broker or firm has any disciplinary matters in his or its past. Only two answers are permitted "no" and, get this, "maybe." If that is what is called industry self-regulation in the publics interest I have some swamp land in Florida for sale today.
For an agency that spends $888,000,000 a year you would think small investors would have far better protection and greater internet access to information on an industry they rely on to protect their assets. The beat goes on. Little guy beware, Wall Street wants your money to "invest" in the latest new investment-fad, product du jour. And you can take that to the bank.

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