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Review: FINRA Needs Reform After Madoff, Stanford

A special review has found that the brokerage industry's self-policing body must make reforms to protect investors after its inspections failed to uncover the massive Ponzi scheme run by Bernard Madoff and the alleged fraud by R. Allen Stanford.

The special committee's review recommends the Financial Industry Regulatory Authority's brokerage examination program be revamped to ensure that detecting and preventing fraud are central elements.

The review found that FINRA lacks a central database for its examiners with investors' complaints about firms, so staff members missed numerous "red flags" on Stanford's firm.