SF-based investment bank, Thomas Wiesel, added nearly $4 million in profits today - after a FINRA hearing panel cleared the investment bank of nearly all charges related to the sale of auction-rate securities ("ARS's")  during the last financial crisis. Just 5 days ago, Charles Schwab was cleared of ARS charges filed by then-NY attorney general Andrew Cuomo (see 11/3 Reuters story) by a state judge. Today's FINRA hearing panel retained a single charge against Thomas Weisel - that the investment bank failed to have “adequate supervisory systems and procedures.”  For this violation, Weisel will pay a $200,000 fine, and the cost of the hearing.  That’s a small price to pay, given that Thomas Wiesel had set reserved about $4 million for the case. Fundamental Shift in Landscape. Today's victory by Weisel is a tremendous achievement, especially when coupled with Schwab's victory last week.  That's because, in recent years, regulators have successfully cracked down on firms that it accused of  aggressively peddling ARS's - long-term bonds whose interest rates are reset at monthly auctions. In 2008, several firms continued to market such instruments as safe investments, despite increasing market turmoil, and just before broker-dealers stopped being buyers in the auctions - essentially drying up the markets.  Among the firms sanctioned were:  (i) in 2010, Oppenheimer settled with the NY AG, agreeing to buy back $31mn in ARS's;  (ii) earlier this summer, Raymond James settled with the SEC by agreeing to buy back investments and pay $1.75mn to state regulators. FINRA 2010 Charges Against Weisel. FINRA Enforcement Division accused Thomas Wiesel and investment adviser Stephen "Henry" Brinck of “stuffing” $15.7 million worth of ARS's into the portfolios of 3 clients - right before the ARS market collapsed.  FINRA alleged that the firm was aware of the rising risk of these securities, but nonetheless offloaded them into client accounts so as to raise money for employee bonuses.

According to Enforcement, the firm transferred these securities without proper consent and gave 2 clients false information in order to secure “retroactive consent,” according to a copy of the decision reviewed by DealBook.  Regulators further accused Weisel of providing FINRA with false information.

Hearing Panel Decision. The panel concluded that Thomas Wiesel and Mr. Brinck had no reason “to anticipate the market failure that occurred 2 weeks later” and that FINRA lacked enough evidence to determine that both defendants had intended to defraud its clients, or that they provided false information to clients and FINRA. It's uncertain whether FINRA Enforcement will appeal the decision. Stifel Nicolaus, which acquired Thomas Wiesel for $300 million last year, did not immediately respond to requests for comment.  [Dealbook, 11/9/11]