Month: July 2010

The fat lady is singing – Jesup & Lamont, Inc. files for bankruptcy.

According to this website, Jesup & Lamont, Inc. filed for Chapter 11 bankruptcy protection today. Perhaps this phoenix will rise from the ashes, but I doubt it will do so under current management. A sixth grade lemonade stand might have been run better.

It’s a shame, too. Jesup was a storied name, but so were Oldsmobile, Pontiac and Mercury. But they all suffered from the same problem – bad management and more desirable competitors. And let’s not forget that there are FINRA employees who have broken out the champagne and are doing cartwheels in the hallways. (Although they would never admit it.)

I fell badly for some of the employees, too. (But not their management team.) At least some of their registered representatives have landed with another firm, Anderson Strudwick of Richmond, Virginia. I wish them the best. Maybe they’ll flourish without the burden of working for their former employer.

The interesting question now is, what will happen to all the brokers who were named in arbitrations while Jesup employees. Being a broker formerly employed by a now-defunct brokerage firm is akin to being the last member of Saddam Hussein’s private army, and you didn’t find out that Saddam surrendered. You keep fighting the fight, but you have only your own resources to back you up. We shall see.

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

Madoff Investors Face Clawback Fight.

The Wall Street Journal reports that Irving Picard, the Madoff Investment Trustee, intends to sue about 1,000 investors who withdrew more than they put into the Madoff fraud. Mr. Picard faces a December 2010 filing deadline to start his lawsuits. This is not just going to be an inconvenience for some people, it could mean the end of their lifestyle as they know it.

This will leave these investors with a predicament. Do they spend down some of their remaining money to fight the lawsuit and argue that they don’t owe the money back? Do they argue that it is unfair because they didn’t know about the fraud, or that they spent the money? Do the try and cut a deal with the Trustee, who seems determined to treat everyone “equally”.

And fairness issues become very tangled. What happens to the person who spent the money in an unrecoverable manner, like a round-the-world trip, or something less extravagant like a grandchild’s college education? Will Mr. Picard try to drill down and recover the funds? Will he require the sale of long-held assets that were unrelated to the fraud? These are difficulty legal, practical and moral issues that the trustee will have to address.

In the meantime, it is likely that a cottage industry of Madoff defense lawyers will develop. They will develop some sort of strategy to deal with the Madoff Trustee’s lawsuits. Time will tell.

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

The shoe is on the other foot – Schwab sues other broker/dealers for alleged misrepresentations.

Holy crap this can be fun sometimes. Let’s see, customers have filed numerous arbitrations against their firms for mortgage-backed securities. Charles Schwab may have been among those firms, I haven’t taken a deep dive into the FINRA Awards database or Brokercheck, but I would venture a guess that there’s at least claim.

So Schwab thinks it’s been lied to, Investment News reports. So what does Schwab do? It files suit alleging misrepresentation against a number of the big players on Wall Street.

Notice that I said “suit” and not “arbitration.” Apparently someone at Schwab missed that part of the FINRA Constitution and Rules. So the first move should be to compel arbitration. I’m guessing that this is a strategic move to scare the broker/dealers into a settlement rather than face exhaustive discovery, either in court or arbitration, against a well-funded and angry opponent.

It seems like Claimants’ lawyers everywhere may want to see a bouquet of flowers to the General Counsel at Schwab.

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

Investment Advisor Representatives Face New Public Disclosure

FINRA registered representatives have faced public disclosure for quite a while. In fact, public disclosure, including time before it was on the web, has been around for close to 20 years I think.

Initially, a request was made in writing or by telephone. Then the NASD, as it was known at the time, would print out a report and send a copy to the requestor. The firm and the broker would also receive notification of the request. That has gone by the wayside. Like so many other things, the Internet has changed things.

Now, anyone who’s interested can simply log on to FINRA Brokercheck, follow the instructions and you’ll see what’s available from FINRA. Many states, Florida included, will give a requestor a copy of the broker’s complete CRD record, which is much more thorough. This worked for stockbrokers, but investment advisor representatives were a different animal.

For instance, a broker could lose his/her license and still get a job with an investment advisor. The public customer might not think to look at either the Brokercheck or CRD reports. So the broker might have issues in his/her past that would give the client a reason to move on. But without a coherent reporting system, the client was operating in a vacuum.

Things have now changed. The SEC has significantly upgraded its online disclosure system, which used to be called IARD. It is now called IARD and you, dear reader, can find it here.

Disclosure is good. On the SEC system, one can search by representative name or firm name. The reporting is not perfect, but it is much better and more extensive than it was before. So the next time a good-looking, smooth-talking, salesperson is sitting across your kitchen table pitching his/her firm’s great management abilities, get out your laptop and log on to the IAPD. Maybe you’ll find something that will make you think twice, or at least ask more questions.

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