My firm is adverse to the same brokerage firm in two arbitrations. They are not particularly big cases, but after more than 10 years of litigating against the same firm, I realized that it appears to be a mindset.
Bad Language Leads to Arrest of Asset Management CEO
A must read – “The Big Short”
I just returned from vacation. It is one of the few times during the year that I turn off the cellphone, email and fax. Instead, I spend time “enjoying” my family (they seem to act like it’s a burden) and we all perform an ancient ritual called “reading.”
In my case, I read fictional war thrillers and an occasional book related to my profession. While at the library, I came across “The Big Short”, written by Michael Lewis. For those of you that remember when music came in a form other than CD, he also wrote “Liar’s Poker.” I was fascinated by the simple analysis that ultimate resulted in some people making a ton of money due to the greed and/or stupidity of others.
Basically, Mr. Lewis described several investors, none of whom were big firm Wall Street types, who figured out those teaser rates, and loans that didn’t require any payments, that suckered in countless homebuyers would ultimately crash and burn. Their analysis told them that it would happen in mid to late 2007 or early 2008. And they were right.
These people did not “bet” against the homeowners. They bought Credit Default Swaps and other pieces of garbage that Wall Street devised as a means to make more money. Wall Street did not expect the CDSes and other derivative instruments to blow up in their collective faces. All that these investors did was buy the insurance, for about a 2% premium, on pools of mortgages that had the worst of the worst in them, negative amortization mortgages, teaser low-interest ARMS and teaser rate interest-only ARMs among them.
And these investors just waited for things to blow up. Which they did. Mr. Lewis also describes how the garbage loans were packaged together and, amazingly, the ratings services would give them Triple-A ratings. Somehow, the ratings services believed that if you assembled enough garbage into one can, it smelled like a rose. Hmmmm.
Reading this book reminded me of a situation shortly before the tech market crash in 2000. I was talking to a brokerage executive and we discussed how a fireman in New York had quit his job to write a mutual fund newsletter. We agreed that this was the first indication that the world would collapse. And it did collapse within about 18 months of this discussion.
Lewis serves as a good historian in “The Big Short.” And remember what they say – If you don’t learn about history, you are doomed to repeat it.” Unfortunately, most people don’t remember the saying. Read the book. I can’t say enough good things about it.
That’s the mortgaged, but not underwater, view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.
FINRA Promissory Note Decisions Reflect Market Forces.
Early on in my legal career, I was a collection lawyer. In fact, I did collection work as a legal assistant while I was in law school. When I started doing collections in the securities business, I immediately starting working on promissory note cases. They go by many names, we called them Transitional Compensation.
Employers’ Use of Computer Fraud Act May be Slipping.
My friends at Fisher & Phillips, LLP maintain the Non-compete and Trade Secrets Blog. I have known these folks for a long time and they’re good at what they do. They may be wrong (wink), but they’re good at what they do.
The reason I say that the may be wrong is that we don’t frequently agree on issues relating to stockbroker recruiting. Usually, my friends are representing the brokerage firm and I’m representing the soon-to-be victimized registered representative who’s just trying to earn a living. I’m much more in favor of freedom of movement than they are. And that’s what makes them wrong.
One of the tools in the former employer’s arsenal had been the Computer Fraud and Abuse Act. I have defended cases where the CFAA has been used as a weapon in an attempt to criminalize, or quasi-criminalize, the simple act of accessing one’s clients’ names and addresses to facilitate a move from one firm to the next. Brent Cossrow, of Fisher & Phillips, provides his analysis of a criminal proceeding that analyzes the CFAA and its limits.
The US District Court for the Southern District of New York held that accessing a computer using one’s authorized username and password, and obtaining information he/she was otherwise authorized to retrieve, but for alleged improper intent, is not a violation of CFAA. I’m pretty sure that Brent disagrees with the court’s holding, at least on behalf of his clients who would like to use the CFAA to scare a former employee into settlement. That’s OK. It’s a free country. For now.
That’s the view of one computer-literate lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.
SEC suit raises disclosure questions for breakaway reps – Investment News
Investment News discusses a recent SEC action against an investment adviser who left a wirehouse and formed his own RIA. Many brokers are viewing RIA business as a magic bullet to solve their increasing unhappiness with the wirehouse life.
I have seen this before. But years ago, it was “wrap fees.” Brokers were tired of being accused of churning (executing trades solely to generate commissions) so they thought that a wrap fee, where a fee is charged as a percentage of assets. But then the SEC found that brokers were setting up wrap fee accounts and not performing any special services or executing trades. So this was not in the clients’ best interest either. A few major firms paid fines to FINRA and/or the SEC for failing to detect this “park and wrap” strategy.
So, how does an investment professional avoid these various potholes? Remember that the regulators do not want you lying to clients. Don’t tell them falsehoods to entice the clients to move to your new firm. If you’re going to have a wrap fee arrangement, make sure services are delivered in return. Simply placing a client in a wrap fee and moving on is not in the client’s interest.
That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.
FINRA washes out broker’s mouth with soap and a suspension.
OK, so remember when your mother was allowed to wash out your mouth with soap for using “dirty” words? (Now I think it counts as child abuse.) I do. There is at least one person who does not.
In a recent FINRA disciplinary decision, a certain “forbidden” word was written in the opinion multiple times. I can’t recall ever seeing that word appear in a prior opinion, but it most certainly could have. The opinion is here. The interesting thing is that the word was used in quotes of statements made by the Respondent (the person whose license was in jeopardy.)
I am certainly no prude. Anyone who knows me knows that I can sling profanity with the best of them. But I make it a practice of not directing it at regulators (at least not in their presence). But this individual, who was represented by counsel and must have been embarrassed by his client’s conduct, simply let the FINRA employees have it, with both barrels and unvarnished. I don’t know WTF he was thinking.
But I can only imagine his reaction to the fact that the National Adjudicatory Council increased his fine from $12,500 to $50,000 and increased his suspension from 35 days to one year. I’ll bet he said more than WTF.
So what did we learn from this? Don’t curse at regulators, unless you’re related to one. Behave yourself in disciplinary hearings. And don’t threaten people that you will get them fired. Either get them fired or don’t. They don’t react well to mere threats. In all my time practicing, I can’t say that I’ve ever threatened a regulatory employee that I would make them lose their job. I’m thinking that they would resent that behavior. But that’s just me.
So, read the decision and let’s all say WTF together and thank our stars that we’re smarter than this one person who seems to have an anger management issue.
That’s the friggin’ view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc “effing” Dobin. Have a great “effing” day.
And now for something fairly different – Sesame Street
I did not watch Sesame Street when I was a kid. I think I was just too old. But I love the Muppets, in part because their humor can be enjoyed on many levels. This clip popped up in something I was reading.
Now back to me…
Just a reminder that we need to laugh every day.
That’s the fuzzy view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc dobin
SunTrust Investment Services Disciplined for Unit Investment Trust Activities.
SunTrust Investment Services brokers, as I understand it, sit in banks. They wait for bank clients to come in and try to sell them securities. Generally, these clients are not experienced investors who are seeking out a stockbroker, active trading or margin accounts. They are customers who remember when CDs paid 5% per year and thought that was low.
In these low interest rate markets, it is not unusual for the average CD buyer to become a “yield hog” and look for something that is paying more than the 1 – 3% the bank is offering. These clients, for the most part, only look at current yield and don’t consider that the underlying value will fluctuate. Bank brokers have disclosures that they are required to make, but the customers frequently just don’t pay attention to them.
FINRA just ordered SunTrust Investment Services to pay $1.44 million in fines and disgorgement for unsuitable, mostly short-term, transactions in Unit Investment Trusts, Closed-End Funds and Mutual Funds. (when you click on the link, you will need to go to the last pages of the FINRA newsletter.) FINRA found that two brokers in the Maryland area were short-term trading these “packaged products” which was unsuitable.
The “packaged products” are not short-term vehicles. FINRA has pointed this out before. Branch Managers are supposed to pick this up. They are supposed to look for “red flags” indicating possible violations. In this case, the manager ignored the red flags and was suspended as a principal for six months and fined $10,000. One of the two brokers has been barred from the industry. The other broker still has charges pending.
The irony of this whole story is that these transactions last took place in 2006 and FINRA’s disciplinary system just ruled. So four years later, when one broker is gone, the manager suspended and the other broker still fighting, SunTrust pays a big penalty (for me, anyway) and moves on. That’s the cost of doing business. Will it change the way SunTrust does business, one would hope it would. But the systems were in place already and the warnings were ignored. Maybe next time?
That’s the view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin
A good use for an iPhone with a broken screen – space adventurer!
This is pretty far off-topic, but I have to admit that this is a good use of an iPhone. A father and his young son sent an iPhone with a broken screen into space tethered to a weather balloon. This is very cool.
Homemade Spacecraft from Luke Geissbuhler on Vimeo.
I’m still not an iPhone fan, but at least we can say “Space Travel? There’s an app for that.”
That’s the extraterrestrial view of one lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin. Take me to your leader.