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Individual with Industry Ties Takes Over as Head of Financial Industry Oversight – Same Old Story

At a time when some legislators in Washington are calling on federal regulators to do a better job of protecting private and retail investors, there is a new man heading up the brokerage industry regulator authority, FINRA. FINRA is an SRO, or self-regulatory organization which oversees the securities industry and whose mission is to protect investors.

Robert W. Cook, former director for the Securities and Exchange Commission’s division of trading and markets, will take over as president and CEO of the Financial Industry Regulator Authority, next month. The 50-year-old steps into the role as lawmakers level heavy criticism against FINRA after a series of financial scandals that span over the last 15 years.

Unfortunately for investors, Mr. Cook spent 18 years at Cleary Gottlieb, a large New York based law firm that defends the same broker-dealers and financial institutions he will now oversee.  In fact, Cleary Gottlieb’s website touts Mr. Cook’s background at the firm in its announcement he has been appointed FINRA’s CEO.

Advocates for more effective regulation say strong leadership without significant industry ties is needed to make real changes. Peter Mougey, with the Levin, Papantonio Law Firm in Pensacola concentrates his practice in the areas of financial services and securities litigation, as well as complex business litigation.

”FINRA continues to select individuals who have significant and long-standing ties to the securities industry as key leaders in its organization” according to Peter Mougey “We have had one major Wall Street scandal after another and it is time to select a leader at FINRA whose career has focused on investor protection rather than defending financial institutions.  The same people Mr. Cook defended will now be on the opposite side of the table as he attempts to regulate the industry – an impossible task.”

This week, more than half a dozen senators also pressed the SEC chair to investigate potential fraud and illegal conduct that may have contributed to Puerto Rico’s debt and fiscal crisis. The commonwealth is currently struggling with about $70 billion in debt and $46 billion in unfunded pension liabilities.

“The people of Puerto Rico deserve to know whether illegal activity by advisors to Puerto Rico and its municipal entities contributed to the current debt crisis,” said Sen. Bob Menendez, D-N.J., when he pressed SEC chair Mary Jo White on the issue. Senate lawmakers also asked White “whether the SEC needs new authorities to better protect municipal entities in Puerto Rico and elsewhere.”

Legislation designed to help the commonwealth deal with its debt crisis has passed the House and is waiting for consideration in the Senate. One amendment that was added to the House bill provides discretionary authority to a seven-person oversight board to investigate whether brokers and investment advisers either failed to disclose or misrepresented the risks of Puerto Rico securities sold to retail investors.

Mougey is representing hundreds of clients in Puerto Rico who lost money due to conflict-ridden advice.  The conflicts were reported in the national press and commented on by numerous academics years before the losses occurred.  Yet, the regulators did nothing to ensure investors were warned about the problems.  Instead, it was business as usual says Mougey, and now thousands of investors have lost their life savings while Wall Street firms made billions of dollars.

Last month, Senator Elizabeth Warren, D-Mass., and Senator Tom Cotton, R-Ark., sent a letter calling on FINRA to do more to protect investors from both advisers who have a history of misconduct and the firms that keep hiring them. They claim the misconduct continues because of ineffective sanctions for advisers. “Each day that FINRA fails to take stronger action is another day that working families will be exposed to an unacceptably high risk of financial adviser misconduct,” the letter stated.

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