Ann Marsh of Financial Planning says that a new report documents conflicts of interest on the FINRA board, the self-regulatory body with jurisdiction over financial services.
A new report by a group of securities arbitration attorneys calls into question FINRA’s ability to protect investors given alleged conflicts of interests on its board.
The report was issued Wednesday morning by the Public Investors Arbitration Bar Association, whose members represent investors in legal disputes with FINRA member firms. The group raises concerns about five of FINRA’s 13 public governors and one recently departed governor who now sits on the Federal Reserve’s Board of Governors.
FINRA’s board is comprised of 24 members. Among them, 10 have open industry ties consistent with the nonprofit’s public-private status as a self-regulator of the financial industry. Another 13 seats are designated to public members, intended to represent investors. The remaining seat is for FINRA’s CEO.
VEA Vice Chair Nell Minow was quoted:
“It’s just a disgrace,” says corporate and nonprofit governance expert Nell Minow. “These conflicts of interest are a monstrous issue. It destroys any credibility that the organization has at all.”
Minow, who is vice chairman of ValueEdge Advisors in Portland, Maine, was not involved in PIABA’s report. “This is exactly the reason that we don’t like to see industries regulate themselves,” she says. “Normally it takes a government agency at least a generation to become completely captive to industry. But in a self regulatory system, it takes five minutes….”This is not the fox guarding the henhouse,” she says of FINRA’s governance issues. “This is the fox eating all the hens.”
VEA Vice Chair Nell Minow is quoted in an expose from The Street about “independent” director, Enrique “Rick” Hernandez Jr., whose board duties include chairing the risk committee at Wells Fargo until he is replaced next month following a serious “no” vote of 47 percent against him at the last annual meeting. His security business is hired by the companies on whose boards he serves, including MacDonald’s and Chevron. The individual payments are low enough as a percentage of revenue that they do not require disclosure, though the cumulative amount is considerable. It is meaningful enough — and pervasive enough — that failure to do so raises serious questions. “I’m stunned to hear about this,” Nell Minow, vice chair of consultant ValueEdge Advisors, which counsels big investors on corporate governance, said in a telephone interview. “That’s the kind of thing that used to go on all the time, but it’s generally frowned on now as invalidating the independence of the director.”
The issue is not limited to publicly traded companies.
Inter-Con also got security business from Children’s Hospital Los Angeles, the non-profit organization where he served as a trustee from 1990 to 2009, including seven years as vice chairman. His wife, Megan, has served on the board since 2010.
The Street says that payments from the charity have amounted to more than $15 million.
Source: How Wells Fargo Bought Millions in Services From an Independent Director’s Firm – TheStreet
A Reuters investigation finds that seven public pension funds are paying fees to a management company owned by President Trump.
Public pension funds in at least seven U.S. states have invested millions of dollars in an investment fund that owns a New York hotel and pays one of President Donald Trump’s companies to run it, according to a Reuters review of public records. That arrangement could put Trump at risk of violating an obscure constitutional clause, some legal experts say.
The Trump SoHo Hotel and Condominium in Manhattan is an upscale 46-story property owned by a Los Angeles investment group, the CIM Group, through one of its real estate funds. (Read the most recent amendment to the Trump SoHo’s offering plan)
The possible problem for Trump lies in the fact that state- and city-run pension funds have invested in the CIM fund and pay it a few million dollars in quarterly fees to manage their investments in its portfolio, which includes the Trump SoHo, according to state investment records.
In return for marketing and managing the hotel-condo, CIM pays Trump International Hotels Management LLC 5.75 percent of the SoHo’s operating revenues annually.
That payment chain merits closer scrutiny because it could put Trump at risk of falling foul of a little-known constitutional rule prohibiting the flow of money from states to the pockets of a sitting president, five ethics and constitutional law experts interviewed by Reuters said.
Source: Exclusive: A New York hotel deal shows how some public pension funds help to enrich Trump | Reuters
Ross Kerber reports at Reuters:
Several big fund firms supported challenges on executive pay or climate disclosures less frequently where they had business ties to energy companies and utilities, according to a new study released on Tuesday.
The scrutiny of firms including Vanguard Group and Invesco Ltd is the latest research to raise questions about how well they manage potential conflicts of interest when casting proxy votes at the same time they are trying to win work like running corporate retirement plans….For its study 50/50 reviewed how fund firms voted on 27 proxy questions last year at oil and gas companies and utilities, tracking how often they voted against management recommendations.
At Vanguard, for instance, 50/50 found the $4 trillion Pennsylvania index fund manager broke from management 22 percent of the time. But at four companies where Vanguard serviced retirement plans, its funds did not support any challenges….Another fund firm, Invesco, broke with management 12 percent of the time, and at none of seven companies where it had business ties.
Kerber’s article includes more information and responses from the managers included, denying that the votes are influenced by conflicts. The full report is on the 50/50 website.
[T]he 50/50 Climate Project found that the managers who tended to vote in favor of management received more in fees and stewarded more assets than all other managers combined, and that their voting practices were even more management friendly at companies with which they had business relationships.
The billionaire chief executive of Dole Food Co and his top lieutenant must pay $148.2 million of damages to shareholders they shortchanged when the produce company went private in 2013, a Delaware judge ruled on Thursday….Shareholders accused Murdock and Carter of driving down Dole’s share price by downplaying the Westlake Village, California-based company’s ability to boost profit by cutting costs and buying farms, and canceling a stock buyback.
In his 106-page decision, [Vice Chancellor Travis] Laster saw Carter as the main engineer of the scheme, calling him Murdock’s “right-hand man” and saying Carter “actually engaged” in fraud.
“Although facially large, the award is conservative to what the evidence could support,” Laster wrote.
In a decision that may cast a pall on management-led buyouts, Vice Chancellor Travis Laster said Dole Chief Executive David Murdock, 92, and former Chief Operating Officer C. Michael Carter were liable for depressing the stock so that Murdock, who owned 40 percent of Dole, could buy the rest at a lowball price.
via Dole CEO liable for $148 million over unfair buyout: Delaware judge | Reuters.