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Judge okays broker's lawsuit seeking FINRA openness

By Joseph A. Giannone

NEW YORK (Reuters) - A campaign by a tiny brokerage to force Wall Street watchdog FINRA to open its books lives on after a judge denied the regulator's request for dismissal.

Judge John Mott of District of Columbia Superior Court ruled on February 3 that the Financial Industry Regulatory Authority is not entitled to immunity and that Amerivet Securities may proceed with its lawsuit.

The California firm sued FINRA, a private company that regulates broker-dealers, in 2009 to provide more disclosure of its finances, executive pay and other issues.

Amerivet submitted seven proxy proposals, on these and other issues, that were overwhelmingly approved by FINRA members in its annual meeting last year. FINRA's board did not implement any of the nonbinding proposals, although it agreed to more fully disclose compensation for top executives.

A court hearing is scheduled for March 4 in Washington, Amerivet's attorney, William Anderson, said.

A FINRA spokeswoman declined to comment.

"Problems at FINRA persist: organizational transparency is practically nonexistent, the FINRA ombudsman is all but a joke, FINRA executives and board seem to operate without accountability, and there has been no reform with respect to executive compensation," Amerivet President Elton Johnson wrote in a letter dated February 7 to FINRA's 4,700 member firms.

Johnson, a lieutenant colonel in the U.S. Army Reserve, is scheduled to begin his third tour of duty in Afghanistan in the next two weeks. He was not immediately available to comment.


FINRA is not a household name but wields great power as Wall Street's self-regulatory organization. Its former chief executive, Mary Schapiro, took over as chairman of the Securities and Exchange Commission. Another former FINRA executive, Elisse Walter, is an SEC commissioner.

Johnson complained that FINRA has performed poorly as a cop on the beat, noting in particular its failure to catch the massive Bernard Madoff Ponzi scheme or to slow the excesses of the great credit bubble that led to the 2008 financial crisis.

At the same time, Johnson says the regulator's officers are overpaid. Schapiro, he noted, received $7.6 million in retirement benefits and a bonus of $1.3 million in 2008.

The SEC recently approved a rule requiring U.S. companies give shareholders a non-binding vote on executive pay.

By contrast, Johnson wrote, FINRA's board last year declined to adopt Johnson's "say on pay" proposal.

"The management and regulatory failures at the SEC and FINRA need to be addressed," he said. "I suggest that they be required to live by the same stringent code that they are supposed to enforce."

Johnson said he intended to submit a new round of proxy proposals to adopt "one-firm, one-vote" governance at FINRA. Currently, a few large firms have just as many votes on the regulator's board as the thousands of smaller firms.

Last year, FINRA's board considered but did not adopt the seven proxy items as proposed and approved by more than two thirds of FINRA's members.

FINRA said in October that an internal investigation found the regulators did not mishandle its $1.6 billion investment portfolio or overpay executives.

(Editing by Ted Kerr)