Gretchen Morgenson is a business columnist for the New York Times. I enjoy reading her articles in the Sunday Business section for their relentless focus on the criminal activities conducted by Wall Street — criminal in the moral sense, as they are usually legally defensible.
But that’s changing: in last week’s article (April 24, 2011), titled A Crack in Wall Street’s Defenses, describes how two investors (who are neighbors in Aspen) successfully battled Smith Barney (a Citigroup subsidiary) and were recently awarded $54 million in a securities arbitration case, $17 million of which was for punitive damages. This was decided by the Financial Industry Regulatory Authority (or FINRA), an industry sponsored self-regulatory board that is approved by the SEC.
These investors were told that a complex arbitrage portfolio involving municipal bonds would provide above average returns between 2002 and 2007. In reality, it was providing Smith Barney guaranteed profits at investors’ expense. I’ll spare you the details; it’s a story we all know too well…don’t we?
But the award is highly unusual, Ms. Morgenson notes, because the usual lame excuses (um, excuse me, I meant to say ‘usual defenses’) which Wall Street typically hides behind did not work this time, namely:
1. We didn’t blow up your portfolio, the financial crisis did.
2. If you’re wealthy and sophisticated, you should have understood the risks.
3. The prospectus warned that you could lose your shirt, so don’t come crying to us if you do.
I found this highly encouraging; and if Ms. Morgenson is putting into her Sunday Times column, you can be sure she thought so as well.
I also found the final comment by the principle investor, Gerald Hosier, pretty telling as well: “Instead of the financial world being the lubricant for business, they are out there manufacturing products with no utility whatsoever except for generating fees. Somebody’s got to do something about Wall Street. It is destroying the country.”
Join the club, Mr. Hosier; this is what David Korten has been telling us for years now. We need to mobilize as a society, take back our economy from the Wall Street by reregulating that self-serving and criminally damaging industry, and make it start serving Main Street again!