Who’s Minding the Store? Two Stanford Financial Employees Served on Investment Industry Watchdog Board

In a new twist to an ongoing story that is either funny or disturbing (maybe a little of both?), Stanford Financial Group, the Texas-based investment empire under investigation for an $8 billion securities fraud, had two high-ranking employees serving as advisors to the financial-industry watchdog group charged with preventing investment broker abuses.

The Financial Industry Regulatory Authority, or FINRA, is the largest independent regulator of United State securities firms. The authority polices investment brokers and agents and operates separately from the Securities and Exchange Commission, the federal agency primarily responsible for enforcing the nation’s securities laws.

Lena Stinson, who was Stanford’s director of global compliance, served on FINRA’s membership committee, while another Stanford employee, Fredereick Fram, the CEO of Stanford Group Holdings, had a seat on FINRA’s continuing education committee.

Stanford Financial Group, the firm owned and operated by disgraced tycoon Allen Stanford, also is listed as a member of FINRA.

Stanford Charged by the SEC

Stanford, the flamboyant Texas billionaire who is a legend bordering on sainthood on the Caribbean island of Antigua, where his bank was based, was recently charged by the SEC in connection with a “massive” investment fraud. The scheme centered on the sale of certificates of deposit by Stanford International Bank.

Investors were promised sky-high rates of returns but got little or nothing in return. Thousands of investors around the world were taken by Stanford, according to federal prosecutors.

FINRA Regulates Thousands of Brokerages

FINRA is supposed to keep tabs on as many as 5,000 U.S. brokerages, including those controlled by Stanford, who was fined by the agency in 2007 and 2008 for violations ranging from issuing misleading sales literature and conducting a securities business without maintaining minimum capital levels.

In 2007, Stanford was fined $10,000 by FINRA for handing out marketing materials which “failed to present fair and balanced treatment of the risks and potential benefits of a CD investment.” Ironically, those CDs are the very same investment products that have now landed Stanford in hot water.

Who’s In Charge at FINRA?

Having Stanford employees advising you on investment-industry ethics is sort of like hiring a person with a serious sweet tooth to work at your candy shop. The decision calls into question the credibility of FINRA and its ability to ensure the fairness and integrity of the nation’s investment firms.

This week, FINRA named Richard Ketchum as its new chief executive officer, replacing Mary Schapiro, who resigned from the board to become chairman of the U.S. Securities and Exchange Commission. Here’s hoping that under the direction of Mr. Ketchum, FINRA has more sense than to have employees of notoriously fraudulent investment firms advise the agency on investment ethics.

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