For Ross Mandell and Sky Capital, a Long Trip Indeed

Most major media outlets reported Thursday that Ross Mandell and several of his colleagues were arrested for a $140 million investment fraud scheme. Mr. Mandell is the founder of Sky Capital and its former CEO. The government alleges that Sky Capital was nothing more than a boiler room.

Mr. Mandell and his background on Wall Street is a case study for why there has to be regulatory reform. What most media outlets didn’t report is that Mr. Mandell is historically one of the most penalized brokers in history. He was the subject of a 5,649-word story in the Wall Street Journal which disclosed that as of March of 1996 (which is when the story was published) customers had filed 14 known complaints and he had switched jobs at least 13 times during a twelve year career, having been terminated four times for “alleged misconduct.”

There’s no question this guy should have been banned from the industry right then and there. Either the SEC or the so-called self-regulatory agencies, including the NASD and NYSE (which were later combined to form FINRA), were powerless or too lazy to do it - neither of which is an adequate explanation.

Back to Mr. Mandell…

He blamed his woes on an addiction to cocaine and alcoholism and in 1990 entered rehab. Nevertheless a year later despite being sober the NYSE investigated him for unauthorized trading in customer accounts and he faced multiple customer complaints thereafter. Many states wouldn’t license him to trade stocks but through his various employers’ connection with industry regulators he always found a way to continue working on Wall Street. In 1995 he served a six-month suspension for “churning,” which is the act excessive buying and selling of securities in customer accounts for the purpose of generating commissions.

Mr. Mandell again made headlines in 2002 when he launched Sky Capital, a full service brokerage firm which he described as “a more traditional, more personalized alternative to the major financial institutions.” The NASD was apparently powerless to stop him. He told reporters that he had turned over a new leaf and with predictable audacity criticized tech-bubble analysts and CEO’s of being “irresponsible.” He then took Sky Capital public on the London Stock Exchange (LSE).

Sky Capital’s office was later raided in 2006 by the FBI allegedly because customer funds were being used to finance operations after a client filed a related $130,000 arbitration claim. Sky Capital’s answer to that problem was to sue the NASD for $300 million, a lawsuit that was later dismissed by the SEC. The LSE later suspended trading of Sky Capital.

This latest arrest appears to be his last as he faces a potential 20-year sentence. According to the 1996 Wall Street Journal story, Mr. Mandell’s high school yearbook quote was from the Grateful Dead: “Lately it occurs to me what a long, strange trip it’s been,” is what he inserted. Way too long actually; he should have been banned years ago. Now its up to tax payers to clean up this mess.

The story of Ross Mandell is an embarrassment of riches for anyone seeking support to an important clause found on page 72 of President Obama’s plan to reform financial regulation. The clause would “support the SEC in pursuing authority to impose collateral bars against regulated persons across all aspects of the industry rather than in a specific segment of the industry.”

I guess this can be filed into the “better late than never” drawer.

Comments

[Graham and ...:]

Collateral bars: A very good idea indeed. "Once a crook, always a crook." (Usually).

Jul 10 09:34 AM