"* Geoffrey J. Eiten: Arrested, convicted and sentenced to prison in 1984 for cocaine possession with intent to distribute, Eiten was dismissed by his next six post-incarceration employers, and thereafter opened a Web-based penny-stock touting firm called OTC Financial Network. The Web site lists none of his previous brokerage-industry employers, though it speaks of the "high esteem" in which he is held in the investment community and the fact that he has appeared as a "guest analyst" on CNBC's "Squawk Box" cable TV show."
THE ROGUES' REIGN By CHRISTOPHER BYRON
March 21, 2005 --
IT was certainly great TV last week when Re publican Rep. Christo pher Shays of Connecticut put on his best "Boy, am I exasperated!" game face and demanded that baseball commissioner Bud Selig explain why professional ball's proposed new drug policy should give players five full chances to stop using steroids before banning them from the sport.
"Five strikes and you're out" is what Shays called the approach, perfectly capturing the silliness involved in expecting any institution to regulate itself effectively and in the best interests of the public when the institution's own money, power and prestige are on the line.
Yet while the members of the House committee on government reform went about their headline-grabbing business of preening before the cameras with their questions to the bulked-up steroid freaks of the Bigs, there was at least one other arena of congressional oversight where the public interest is similarly being mocked — by the same problem of meaningless self-regulation that is making a joke of Major League Baseball. And so far, Congress seems blissfully unaware that the situation even exists.
We speak of course of the markets of Wall Street, where each day brings yet more evidence of just how badly broken and beyond repair the entire regulatory apparatus of the stock market really is.
This week we'll look at one chilling example of what this has led to: the proliferation of so-called rogue brokers throughout the industry, now masquerading as stock promoters while hiding behind the identity-protecting home pages of Web sites.
First, a brief recap of the regulatory mess that now prevails on Wall Street, and how it got that way.
As has been said more than once in this space, the current 70-year old system that was set up in the depths of the Depression to revive public confidence in the markets is simply not working and needs to be junked, from the toothless and creaking Securities and Exchange Commission at the top, to the scaffolding of so-called "self-regulatory organizations" like the New York Stock Exchange and the National Association of Securities Dealers, that prop it up from underneath.
THE nature of investing has changed so pro foundly over the years that almost nothing these regulators now do has any bearing on the real-life problems that investors actually face. So public relations has become about the only weapon the regulators have left to wield, with each new eruption of offal from the P.R. baloney machine leaving investors feeling queasier than ever at the fan dance being put on to entertain and distract them.
Consider the changes brought by the globalization of Wall Street itself, with more money now being invested in U.S. debt and equities from abroad than domestically. Thus, when Congress passed the so-called Sarbanes-Oxley Act, which seeks to hold corporate officials accountable for the truthfulness of their audited financial statements, foreign companies with shares that trade in the U.S. instantly began pressing to be exempted from it.
By last week it was starting to look as if the SEC was ready to concur — and why not since the commission lacks jurisdiction over these companies in any case! According to Bloomberg News, the commission will soon take up adoption of a rule allowing non-U.S. companies to escape the reach of the act by de-registering their stock from exchanges like the NYSE and allowing the shares to trade on the unregulated Over The Counter market.
Nowhere has this failure of self-regulation been more pronounced than in the roach-like problem of "rogue brokers," who continue to infest the cupboards and sink drains of Wall Street today just as they did more than a decade ago when the SEC first declared them a health menace to the investing public. The only difference now is that they've morphed in huge numbers from licensed stockbrokers into unlicensed stock touts and promoters over whom the regulators have almost no authority or control.
The problem of rogue brokers on Wall Street first surfaced as the pace of the bull market began to quicken in the early 1990s and evidence started to accumulate that scofflaw brokers who were fired by their firms would land on their feet at rival firms the next day.
Soon, this led to a 1995 "study" of the problem by the SEC, followed by a series of "sweeps" by the SEC's enforcement division, leading to several mid-1990s prosecutions by the federal Department of Justice. By the end of the decade, the rogue-broker problem was judged to be over and done with, and the regulators turned to other matters.
IN fact, nothing had changed except the arena of operations for the scofflaws, who had moved from the regulated world of licensed stock brokers to the unlicensed world of Internet-based stock touts. Herewith a sampler of what some of them are up to at the moment:
* Jody M. Janson: Fined $50,000, censured, and banned for life from the securities industry in 1996 for failing to cooperate in an investigation by the National Association of Securities Dealers, Janson opened up an Internet-based "investor relations" business under the name Investors Stock Daily, Inc. Lately, he has been busy promoting the shares of an American Stock Exchange-listed company called Cenuco, Inc., the subject of a penny-stock reverse merger that knocked 18% off its stock price in a single day at the end of last week.
* Geoffrey J. Eiten: Arrested, convicted and sentenced to prison in 1984 for cocaine possession with intent to distribute, Eiten was dismissed by his next six post-incarceration employers, and thereafter opened a Web-based penny-stock touting firm called OTC Financial Network. The Web site lists none of his previous brokerage-industry employers, though it speaks of the "high esteem" in which he is held in the investment community and the fact that he has appeared as a "guest analyst" on CNBC's "Squawk Box" cable TV show.
* Charles T. Tamburello: A one-time griddle cook for a McDonalds restaurant in Stonybrook, L.I., Tamburello worked for two penny-stock brokerage firms before opening his own investor-relations shop called Capital Research Group. In January, Tamburello and several other past or present brokers were found liable for securities fraud in a federal civil court case in Florida for illegal marketing practices involving an Over The Counter penny stock called Dicom Imaging Systems, Inc.
How many more such individuals are loose in the industry isn't known because no one tracks them.
In the last four years, the NASD has yanked the brokerage licenses of 1,854 individuals and barred them from ever working again as stockbrokers. But the NASD doesn't bother to keep track of them thereafter because it has no incentive to do so, and it's the same with the SEC.
So the scoundrels of Wall Street just go quietly into the night, where, safely out of sight and out of mind, many seem to turn right around and tip-toe back into action. So, why bother kicking them out in the first place? Does Congress care about any of this? Apparently not as much as it cares about the really important issues of our time - like taking swats at the stars of major league baseball.
Go figure.
cbyron@nypost.com |
