FINRA ordered by SEC to improve documents policies

[October 28, 2011]  WASHINGTON (AP) -- The brokerage industry's self-policing organization has been ordered to improve its document procedures after allegedly providing altered records to the Securities and Exchange Commission for an inspection in 2008.

The Financial Industry Regulatory Authority's Kansas City office altered the documents, the SEC said Thursday in announcing the order. The SEC, which oversees the group, known as FINRA, and inspects brokerage firms, had requested the records of three FINRA staff meetings.

The SEC said the 2008 incident was the third time in eight years that FINRA employees had given the SEC doctored or misleading documents.

FINRA, which has 4,500 members, agreed to hire an independent consultant to review its policies for handling documents. It didn't admit or deny the allegations.

FINRA has been criticized for failing to uncover Bernard Madoff's massive Ponzi scheme and the alleged fraud by R. Allen Stanford.

The SEC said that on Aug. 7, 2008, the director of FINRA's Kansas City district office caused the meeting minutes to be altered just hours before providing them to SEC inspectors in the agency's Chicago regional office. Some material was deleted or revised and as a result the documents were inaccurate and incomplete, the SEC said. In addition, the original author's signature was changed to the director's, the agency said.

Of the three meetings in question, two were held in 2006 and one in January 2007, the SEC said.

FINRA Chairman and CEO Richard Ketchum said that means they occurred before FINRA was created in July 2007 by the consolidation of the National Association of Securities Dealers and portions of the New York Stock Exchange's regulatory arm.

Ketchum said in a statement that FINRA reported the Kansas City episode to the SEC and cooperated with its review. FINRA also named new officials in its Kansas City office and made changes to tighten procedures for handling documents, he said.

"Under no circumstances will such conduct be tolerated at FINRA," Ketchum said.

The SEC has had its own problems involving documents. The agency recently acknowledged that some records from preliminary investigations of major banks -- and of Madoff -- likely were destroyed under a former policy.

An SEC enforcement attorney has alleged that the agency illegally destroyed records related to thousands of preliminary probes, including investigations of Bank of America, Goldman Sachs, Wells Fargo and Madoff.

[Associated Press]

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