Holding Wall Street Executives Accountable for Allegedly Deceiving Their Brokers and Clients

by Jacob Zamansky on April 20th, 2010 at 12:44 pm : Comments 000

In addition to stratospheric salaries, one of the great benefits of holding a very senior position at a Wall Street firm is never being held accountable for any wrongdoing or questionable behavior.  Sadly, regulators typically go after hapless mid-level employees who merely - and often innocently - carry out orders and directives from the top brass. One of the most egregious examples of underlings taking the fall were the “market timers”  - see Forbes story. Not one senior Wall Street executive has been charged or prosecuted for market timing wrongdoing.

So a little noticed story about the SEC and Finra filing charges alleging that Morgan Keegan fund manager James Kelsoe, along with Joseph Weller, who headed the firm’s Fund Accounting, conspired together to hide significant losses in various bond funds with heavy exposure to subprime mortgages gives me some hope.  The SEC and Finra could have opted to go after the Morgan Keegan brokers who aggressively peddled the funds, however, they acknowledged that the brokers were also misled about the true condition of the bond funds.

While I commend the SEC and Finra for going after some executives with real authority, let’s be honest here: Morgan Keegan is a second-tier Wall Street firm, and the firm likely doesn’t have the deep pockets or legal resources of a Goldman Sachs or a Morgan Stanley to engage in an extensive battle with regulators.   A more telling test of the SEC’s and Finra’s resolve will be how they handle their reported investigation of UBS’s aggressive marketing of Lehman 100% Principal Protected Notes.

UBS brokers apparently were repeatedly misled by their firm about the safety and soundness of Lehman Brothers, and they are now worried about facing regulatory action.

Absolving the Morgan Keegan brokers for selling the firm’s dubious bond funds but going after UBS brokers for selling Lehman Principal Protected Notes seems like a double standard. But after thirty years in the securities business, I’ve learned that major Wall Street firms are held to a much lower regulatory enforcement standard in matters relating to individual investors.

Filed under CEOs, FINRA, SEC, Wall Street, fraud
and brokers