Do you think people will figure it out?

Investment News reports that adviser Kenneth Starr has been arrested. At this point we’re almost desensitized to news such as this. Another Ponzi scheme, more victims, more pain. What else is new?

The twist here is that the victims were “celebrities” (whatever that means. When a guy who can’t dance is a celebrity because of the number of hits on Youtube, it makes you wonder what the word really means.) The other twist is that the victims apparently gave the money manager power of attorney! Not very cautious, these celebrities. I guess they really didn’t care what happened to their money.

The one thing in the article that bothered me most was the term used by the US Attorney to describe some of these victims. He said that anyone could be a victim, including “sophisticated celebrities.” Spare me. Among the victims were a jeweler who was convicted of falsifying records in 2008. And Sylvester Stallone – that’s right folks, Rocky Balboa (although I preferred his character in Demolition Man). Just because you may qualify as a “celebrity” doesn’t make you “sophisticated.” In fact, giving this guy the right to sign your name may be a sign of exactly the opposite.

By the way, if you click here you will see that Bernie Madoff is not scheduled to get out until the year 2139. And I thought reaching 50 was an accomplishment.

That’s the view of one Lawyer from Jupiter, Palm Beach County, Florida, I’m Marc Dobin.

Since the beginning of the Bernard Madoff scandal, I have stated that the people who need to be scared (other than Mr. Madoff and his cohorts) are the “feeder funds.” They may have money. They probably have some duty and they’re still in existence. This is a stark contrast to Madoff’s entities.

I have spoken with several Madoff investors. As I explained to them, it is unfortunate to have this happen to them and that they had a direct relationship with Madoff. In this circumstance, they are simply creditors of Madoff’s entities and have to deal with the receiver and SIPC Trustee. On the other hand, I always said that a good claim could probably be made against the solicitors and feeder funds.

This appears to be the case in at least one situation. HedgeFund.net reports that a Madoff investor was successful in asserting a breach of fiduciary duty claim in arbitration against Ascot Investors, a feeder fund. This article and others report that the arbitrators found that the Ascot Fund was 99% invested with Madoff and that the fund’s management was “neither equipped nor willing to seriously probe what he was told by Madoff.” I’ll bet they were able to spend the money they were making, though.

This decision came to light by way of a Motion to Confirm the Arbitration Award made by the former investor. Such a Motion is necessary to turn the arbitration award into a court judgment. This means that Ascot has not voluntarily paid the award. In fact, Ascot’s attorney is quoted as saying that the arbitrators “manifestly disregarded the law.” That’s usually lawyer-speak for “we’re not paying without another fight.” Good luck, fellas, you’ll need it.

The other interesting part seems to be that there was a confidentiality provision of some sort. The investor’s lawyers are seeking to lift that restriction. This does not appear to be a FINRA arbitration.

That’s the nearly-half-century-old view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

I have been in this business along time. I have been through the 1987 crash, the 1989 mini-crash, the “tech wreck” of 2000 and the crash of 2008-09. Some of these crashes were caused by economic factors, but some have been blamed on human error and computers. The SEC will sift through the wreckage (including my newly-created Roth IRA conversion) and figure out who to blame.

TheStreet.com has its own analysis that includes the Greek crisis and the “trading error” theory. It is the latter theory that concerns me. The 1987 and 1989 crashes were blamed on technical trading mechanisms, usually referred to as “program trading”, that were triggered by market events. In 1987, the crash occurred on the day when the October options and futures expired on the same day. This is believed to have caused the crash.

The 1989 crash started when UAL, the parent company of United Airlines, announced that its management buyout had failed. Many speculators were using a short put strategy as a proxy for buying UAL stock. This could later be described as a failed put strategy. When the covering started, this caused another downward spiral that took the rest of the market with it as the computers took over.

One of the suspects in this most recent crash is a trading error in one stock, Procter & Gamble. It has been reported that some genius entered an order to sell one billion shares of the company’s stock instead of one million shares. Apparently he skipped the lesson in Mrs. Smith’s fourth grade class that covered the difference between one billion and one million.

Anyway…this erroneous order supposedly indicated to the new bad guys in the markets, the “high-frequency” traders, that the market was going to fall. So these automated traders – “program trading” again – started to sell. When there is an oversupply of sell orders, prices drop. When prices drop, more sell orders are generated and before you know it, the computers caused my IRA to lose 10% of its value in an instant.

I have been concerned about this “high-frequency” trading since it came on the scene. It seems to me that this type of trading is harmful to the markets overall and is another reason for the entire “main street v. wall street” debate. A retiree sitting in his living room in Peoria cannot access the markets in the same manner as some “high-frequency” trading computer in a server farm in New Jersey. To make matters worse, it seems that the New York Stock Exchange is encouraging this behavior.

In my humble opinion, this is a result of the NYSE becoming a public company and placing profits over fairness in its markets.

That’s the 10% down view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.

FINRA is seeking to close a loophole. As many people know, if a broker or brokerage firm is found liable in an arbitration, the responsible party has 30 days to pay or move to vacate or modify the arbitration award. This is quite a hammer to have.

But there is an out. If the broker states that he/she does not have the funds to pay the award, then FINRA can allow the broker to stay in the business, service clients and look to the world as if he has not a care. This is probably frustrating to claimants and their lawyers.

FINRA is looking to change this state of affairs. In a proposed rule filing, FINRA is suggesting that “inability-to-pay” is no longer a defense for failing to pay. If you can’t pay, you can’t work, says FINRA (the proposed rule can be found here.. FINRA’s solution? Let the broker file for bankruptcy.

My question is this – how does a bankruptcy cure this? If the broker doesn’t have money, then the client doesn’t get paid. If the broker has money, but is pretending to be broke, eliminates the defense but doesn’t necessarily get the client paid. If the broker is willing to lie about being broke, what makes FINRA think that the broker will say “OK, you got me.” and pay off the award. Not bloody likely.

But still, it makes sense that, if a broker is destitute and in debt beyond his/her eyeballs, bankruptcy may be the better solution. And as FINRA points out, getting the broker under oath under the penalties of perjury is probably a better place to air this out.

And besides, my sister could use the work.

That’s the view from one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.