AN OPEN LETTER TO THE SEC AND FINRA
Back at the end of November, Peter Lattman and Jenny Anderson reported in The New York Times [5] that John A. Paulson, the billionaire hedge fund manager and member of the board of the 92nd Street Y, "has guaranteed he will cover the Y for any losses it incurs in his funds."
The Times reported further: ''This is a very uncommon arrangement,'' said Andrew M. Grumet, a lawyer specializing in philanthropy. ''But the 92nd Street Y isn't your average nonprofit, and John Paulson isn't your average money manager.'' Indeed.
As a member of FINRA and a 30-year veteran of the securities industry, I found the report troubling and called the 92nd Street Y for an explanation. No call back from the 92nd Street Y as yet.
Aside from the apparent conflict of interest involved with having a financial adviser sit as a director on the 92nd Street Y board, the situation also struck me as conflicted because of the explict guarantee made by Paulson.
Indeed,under US securities law and FINRA rules, it is unlawful and a violation of professional ethics for a registered person or investment advisor to guarantee investment results for any client.
So here are my questions for the 92nd Street Y,the State of New York, the SEC, FINRA and other interested parties:
1) Why is it OK for any investment adviser to sit on the board of any NY charity and lose money for that client with no professional repercussions?
2) Why is it OK for an investment adviser to guarantee the investment results of the 92nd Street Y in apparent violation of FINRA and SEC rules?
I look forward to your replies.
Best,
Chris