The Financial Services Industry

The Financial Industry Regulatory Authority (FINRA) is the financial services industry’s primary self-regulating body.  FINRA’s stated mission is to protect investors by making sure the financial industry operates fairly and honestly.  It does this, in part, by writing and enforcing rules that apply to financial services companies, such as a prohibition against using manipulative, deceptive, or fraudulent devices to induce the sale of securities.  When the rules are broken and investors are harmed, FINRA can discipline the wrongdoers by, for example, imposing fines or suspensions.

Despite its impressive mission and capabilities, FINRA has a bit of an embarrassing history.   The one and only Bernie Madoff held big leadership roles at FINRA’s predecessor, the National Association of Securities Dealers (NASD).  He served as NASD’s vice chairman, a member of its board of governors, and chairman of its prominent New York region, all while running the largest Ponzi Scheme in history.  Needless to say, his crimes were never detected by industry self-regulators (or government regulators for that matter).  Authorities only learned of his activities when he was turned in by members of his own family.

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A fraudulent investment operation that tricks investors into thinking that they will earn lots of money on a short-term investment, when, in reality, there isn’t any investment opportunity at all. Rather, the promoter just uses the money from new recruits to pay off the older investors. In other words, stealing from Peter to give to Paul.

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