This article was originally posted on TheStreet Foundation Web site on June 18, 2014
NEW YORK (TheStreet) -- The notorious penny-stock swindler Meyer Blinder was perched at his desk when I arrived to interview him at his Englewood, Colo., brokerage firm, Blinder, Robinson & Co., on a chilly January afternoon in 1986. Before any opportunity for handshakes or other opening courtesies, he embarked on a rant.
"It's nothing more than a vendetta," he began, launching into a diatribe about the regulator -- the Securities and Exchange Commission -- he'd been swatting out of his way as if it were some pesky mid-summer gnat. "The SEC has a vendetta."
He'd been sued by the SEC and censured by state regulators nationwide, inspiring news coverage that suggested a better name for his firm might be "Blind 'Em and Rob 'Em." Blinder told me he didn't deserve such shoddy treatment from the public servants in charge of regulating the nation's capital markets.
I am reminded of Blinder's long-running battle with securities regulators because nearly three decades later, Wall Street's self-regulatory organization is pushing a controversial proposal aimed at nipping operations like Blinder's in the bud. And when you consider how much damage guys like Blinder can do even as regulators are in hot pursuit, you've got to wonder whether the proposed reform would make any difference.
The Financial Industry Regulatory Authority is fighting to get a rule passed that would allow its arbitrators to rat on bad guys if they run across evidence during a hearing that suggests the investing public is at grave risk.
Think Bernie Madoff, who's doing time in a federal prison in Butner, N.C.; or Allen Stanford, who's an inmate at the federal penitentiary in Sumterville, Fla.; or the late Blinder, who wound up serving 40 months in a federal prison for six counts of racketeering, fraud and money laundering.
Finra doesn't want to squander so much as a nanosecond before sending in the troops to swoop in on egregious violators like these, and it's hoping that a tweak to the arbitration rules could accelerate the potential big bust.
As Finra put it in a letter to the SEC on May 19, the proposal would help it "detect serious, ongoing or imminent threats to investors at an earlier stage than would otherwise occur." Finra spokeswoman Michelle Ong said, "It is not appropriate for us to comment on a proposal currently under consideration" by the SEC.
Although the Finra proposal has been kicking around for four years, the SEC said on May 20 that it wanted to hear comments from "interested persons" with respect to possible problems with the rule. More on that in a bit.
In case you've forgotten amid the euphoria of a record-setting stock market, Finra and its overseer, the SEC, were rendered buffoons after missing the crimes of Madoff and Stanford. Redemption might come if smarter policies were to lead to bagging the bad guys in the future.