[ By Larry Goldfarb ] Joel Blumenschein, President of Freedom Investors Corp, a broker-dealer, stepped down from the FINRA Board of Governors on Tuesday, 5/1/12, after he and his firm were the subject to a FINRA enforcement action.  Blumenschein received a 3-month suspension from running his firm. The enforcement action related to actions taken by a broker of the firm who placed more than half of a customer's retirement savings account ($80,000) into unsuitable penny stocks.  FINRA charged Blumenschein with failure to supervise the broker, then giving "evasive and contradictory" testimony during FINRA's investigations. Blumenschein as FINRA Governor. Twenty-two governors sit on the Board consisting of 11 public (non-industry) members and 11 industry members, including  FINRA Chairman and CEO Rick Ketchum.  They're tasked with overseeing FINRA in its mission to protect investors and regulate markets. It is highly unusual for a director of FINRA to be subject to a regulatory action, which may explain, in part, why a hearing was not held until 6 months after the complaint was filed in September 2011, and that Blumenschein's service to the board was not suspended nor placed on temporary leave while the hearing was pending.  Another consideration is that Blumenschein's term is set to end this summer, which prompted some Board members to believe that they should take no action.

[C-I Note: Yet, what does this say about the largest and most important Self-Regulatory Organizations, or SROs, for the securities industry?  That is, to maintain a Board member who is the subject of a serious disciplinary action - taken by FINRA, on whose board he sits.

FINRA’s inaction in the face of the malfeasance by one of its Governors, who are there to uphold the rules of the Organization - one that seeks to expand its regulatory reach to include Registered Investment Advisors ("RIAs").

The Investment Advisory Association has come out against FINRA’s regulation of its members in part because IAA has accused the FINRA of being an "old boys’ network," one that would take the side of brokers against advisors at the drop of hat. FINRA's treatment of Blumenschein should give the IAA and others more pause for thought.]

For further details, go to:  [WSJournal, 5/2/12].