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Finance Rules Chief Seeks Finance-Sector Trust

September 20, 2011 - 6:00pm

The states recently appointed director of the Office of Financial Regulation says his agencys primary goal is to build trust in an industry still recovering from the 2007-2010 financial crisis and high-profile Ponzi schemes that dipped deep into Florida.

OFR Director Tom Grady acknowledged that the Bernie Madoff scandal and others that have been uncovered in Florida in the past few years can never be stopped at the origin.

Grady said such fraud can be lessened through beefed up enforcement. But at the same time, he acknowledged little can be done when such a scheme takes off.

You cant detect it at the beginning, its going to start and grow, Grady, a former state legislator, told members of the Senate Banking and Insurance Committee on Wednesday. That mushroomed to such an extent that its an extraordinary example of people being willing to trust a particular financial adviser because of the way a particular program was represented.

While Madoffs estimated losses to investors were $18 million, he is currently serving a 150-year sentence. Before Madoff was uncovered, investment advisers with $25 million in assets were federally covered. Since that time, the state can now regulate those up to $100 million.

Appointed by Gov. Rick Scott and the Cabinet, Grady -- a former state representative from Naples whose career was as an investment and financial services lawyer said a goal for his agency is to constantly remind consumers to conduct their own due diligence regarding their finances.

You still have to ask the questions, Grady said. The selection of an investment advisory is a very important one. Yet most people will spend more time shopping for a toaster or automobile or something like that than they will for an investment advisory. Its particularly because they think they dont have the skill. So they go to someone they met in church or the Rotary Club. Bernie Madoff preyed on the Jewish community.

Senate Banking and Insurance Committee members directed Grady to suggest legislation that could inhibit his agency from performing its duties.

It would seem to me, if he can come back to us and describe what he feels his job is and how hes going to carry it out, and how many people hell need to carry it out, I think that would be extremely helpful, said Sen. Gwen Margolis, D-Miami.

The office oversees state banks, credit unions, stock brokerage firms and investment advisory firms to areas such as money bureaus, motor vehicle installment contracts and consumer collection agencies.

Grady said the sweeping overhaul of the country's financial regulatory system in 2010, known as Dodd-Frank, may have gone too far, but he expressed a need for regulations.

Regulation is not designed just to catch the bad guys, but regulation is there to help the good guys, Grady said.

The small investors we do want to protect, those are the people who do get sucked into these schemes. I know the limits of regulation, but I also know the benefits of regulation, Grady said. I think we have to be cognizant of regulation. Is the cost worth the benefit?

He added there may be existing regulations that can be eliminated, changed or modified due to redundancy between state and federal offices.

Dodd-Frank and other, state, legislation have increased the regulation of the mortgage process, Grady said. The appraiser allegedly had a great deal to do with some of the mortgage fraud and some of the mortgage issues that have occurred in the last few years.

The Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal governments response to the 2007-2010 financial crisis, included massive consumer protection reforms, consolidated regulatory agencies and measures aimed at increasing international financial standards.

If you have more reliable appraisals, youd think you would have fewer instances of mortgage fraud," he said. "But there is always an unintended consequence to that. And the unintended consequences are (that) appraisers are afraid about going to jail now and maybe theyre too conservative and that is slowing down our economy.

Reach Jim Turner at or at (850) 727-0859.

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