articles by susa1595

Do Deutsche Bank’s ‘Prettier’ Women Get the Best?


This article originally appeared in Bloomberg View on May 5th, 2013.

Most big-name financial firms pay lip service to diversity, peppering their websites with smiling women and people of color who are in short supply in the mostly white-male trading rooms and executive offices of real life.

Amid the spin, though, there’s one bank that wins plaudits around the globe for its gender programs.

At Deutsche Bank AG, business conferences and seminars for women attracted 5,000 of the company’s employees and clients last year, according to the bank’s website. It has scored a spot on Working Mother magazine’s “100 Best Companies” list 13 times since 1996, and was named “Best in Financial Services Sector” by the U.K. charity Working Families, which does research on work-life issues.

Eileen Taylor, Deutsche Bank’s global head of diversity, said in an e-mailed statement that a program called Atlas, started in 2009, has helped push 50 percent of the women who have used it into broader roles.

So you have to wonder why the Frankfurt-based bank is spending so much of its time fending off lawsuits that accuse it of harassment, retaliation, gender bias and discrimination against pregnant women.

In a lawsuit filed Jan. 28 in New York State Supreme Court in Manhattan, Yosefa Shliselberg, a director in the global transaction banking group and 10-year Deutsche Bank veteran, said she was called into human resources one afternoon in 2011 and told, “The business has decided to exit you.” She says it happened two months after she complained to HR about gender discrimination and sexual harassment.

Performance Reviews

Shliselberg, whose performance evaluations cited her “remarkable analytic skills” and “deep understanding” of the bank’s products, told me during an interview last month at her lawyer’s office in New York that the bank had opened an investigation into her effort to start — I’m not kidding — a women’s initiative.

The probe found no wrongdoing, according to her complaint, which would hardly be a shock considering she says she received kudos for her project from everyone from her immediate boss to Deutsche Bank’s former chief executive officer of the Americas: “I’m very proud of you,” Seth Waugh wrote in an e-mail on Feb 11, 2011, that Shliselberg allowed me to review.

After that session in HR, Shliselberg was escorted to her desk, where boxes had already been delivered so she could pack and leave.

You almost wonder if there was something in the water at the bank that can’t do enough to advocate for women. Twelve days before Shliselberg filed her lawsuit, Deutsche Bank fired Heather Zhao, a vice president in Deutsche Bank’s global investment solutions group.

That axing came nine days before Zhao was scheduled to return from maternity leave, according to her complaint filed March 29 in the U.S. District Court for the Southern District of New York. Zhao’s suit says that after she learned she was pregnant in early 2012, she was blanketed with Neanderthal-style remarks from men at the bank. One highlight, according to her complaint: “Maybe I should get pregnant so I can work from home.”

Best place for mothers, indeed.

Deutsche Bank spokeswoman Michele Allison said the bank wouldn’t comment on pending litigation.

Not to pile on, but while we’re on the subject of pregnancy, another employee, Kelley Voelker, was fired from her job as a vice president on the securities-lending desk in September. She said in an amended complaint in U.S. District Court in October that after suing the bank for pregnancy discrimination in September 2011, Deutsche Bank retaliated by firing her. In a response, the bank denied it discriminated or retaliated against Voelker.

Class Act

Deutsche Bank is still in litigation with Voelker, but according to a transcript of a March 18 hearing in her case, two unidentified women who considered starting a class action reached settlements with the bank this year.

Another settlement: Latifa Bouabdillah, a former director in London who sued in May 2011 in the U.K. for sex discrimination. Her lawyer, Tim Johnson, said in an e-mail that the terms were confidential.

As for Shliselberg, I have to wonder if her sorry fate wasn’t somehow related to the dopey public statement of Deutsche Bank’s former CEO Josef Ackermann, who in February 2011 said that the bank’s executive committee would be “more colorful and prettier” once it added a woman or two. Ackermann’s words led to a media maelstrom just as Shliselberg was getting traction for her idea to start a nonprofit group to be called Women in Sovereign Entities.

By the time she was meeting with a bank steering committee in London in April 2011, she was hearing worries that had more than a hint of paranoia: Shliselberg told me one man at the meeting said he was afraid that her proposed group might host an event where women could “get out of control” and take over the agenda.

In its response to a parallel complaint Shliselberg filed with the Equal Employment Opportunity Commission, Deutsche Bank said she had misinterpreted management’s support for her proposal, and that she had raised her allegations of discrimination as leverage to negotiate a cushy exit package. Shliselberg “began neglecting her work” after she started to focus on creating the women’s organization, the bank said. Deutsche Bank’s decision not to sponsor her project was based on business concerns, not discrimination, according to the response.

It’s hard to buy the idea that the same woman who had been praised in performance evaluations as having “excellent communications skills” somehow went clueless when her bosses were trying to tell her that her project for women was a no-go. If this is the best that the “best” company for women can come up with, the banking industry is even more hopeless than I thought.

JPMorgan’s Teflon CEO Glides Past Reputation Hits


This article originally appeared in Bloomberg View on April 3rd, 2013.

JPMorgan Chase & Co. and its chief executive officer, Jamie Dimon, have been dealing with a blitz of bad news of late, but you wouldn’t know it from the accolades that keep getting heaped on them.

There was the $6.2 billion trading loss best known as the London Whale debacle that Dimon dismissed as a “tempest in a teapot”; the humiliating hearing before Senator Carl Levin’s Permanent Subcommittee on Investigations, where we learned that Dimon had played a role in managing the wrong-way trades; and, to top it off, the New York Times on March 26 reported that eight federal agencies were circling the bank with various probes.

Then there are the costs to settle regulatory cases and litigation. Joshua Rosner, an analyst at Graham Fisher & Co. in New York, estimated these have totaled as much as $8.5 billion since 2009 — and that doesn’t count any of the mortgage-related givebacks that came after the financial crisis.

That’s all serious stuff, you might be thinking. So why are investors and sycophantic media types still under the spell of JPMorgan and its top guy?

Even as the grim news was piling up for Dimon and his bank, Barron’s magazine last month honored him as one of the “World’s Best CEOs” — a short list of 30 international superstars.

Feeling Loved

JPMorgan, meanwhile, is feeling the love when it comes to its stakeholders. Steel City Re, a Pittsburgh-based firm that measures corporate reputations, ranks the bank in the 90th percentile among 50 financial conglomerates. Nir Kossovsky, a Steel City co-founder, says he calculates how stakeholders reward or punish companies through such things as sales volume, vendor terms and credit costs.

Little wonder, I suppose, that earlier this year, JPMorgan topped the Fortune magazine list of most-admired banks in the world for the second year in a row. Are the bank’s admirers living in some parallel universe where black marks just don’t register?

Joe Evangelisti, a spokesman for JPMorgan, declined to comment.

At least some of the goodwill toward JPMorgan exists because when it comes to controversy, the bank is a master at spin. At a black-tie gala at New York’s over-the-top restaurant Cipriani Wall Street on March 19, Dimon landed first prize for “Best IR by a CEO or chairman” at the IR Magazine Awards, aka “the industry’s most prestigious and coveted awards that honor leading companies and professionals in investor relations.” A second award to JPMorgan specifically cited the bank for its bang-up job at crisis management.

To win a prize for crisis management, of course, you need to be in a crisis, but that doesn’t seem to sway supporters of the bank or its CEO, who make what sounds like a reasonable argument: JPMorgan is making money, which makes shareholders happy and keeps the board off Dimon’s back. So what’s not to like?

Amar Bhide, a professor of international business at Tufts University’s Fletcher School of Law and Diplomacy, has done some thinking about that question, and said JPMorgan and its competitors are making too much of their money with taxpayer support.

“From the point of view of shareholders, Dimon is not doing a terrible job,” Bhide said. “One could take the extreme point of view and say that you want these people to gamble because they are gambling with the public’s money. If you are a stockholder, you get a nearly free ride, so why not?”

Taxpayer Backing

Banks and their investors know that there’s an implicit backstop — a taxpayer bailout — that will kick in during the worst-case scenario of a financial-system meltdown. Dimon actually endorses the idea of a resolution authority that would wind down failing banks, which sounds great as far as it goes.

But the “savvy leader of the world’s most important bank,” as Barron’s calls him, wants JPMorgan to be able to get bigger and to serve more global clients. How do you force countries outside of the U.S. to comply with another country’s resolution authority? In his letter to shareholders last year, Dimon said that close cooperation would be “required by multiple regulators.”

Sydney Finkelstein, a management professor at the Tuck School of Business at Dartmouth College, says a resolution plan isn’t enough and that banks need to be broken up. The U.S.’s biggest banks are too unwieldy for anyone to manage, he said.

Which takes us back to that $6.2 billion loss springing from the London Whale trades.

Some of JPMorgan’s problems are a lot like the problems of its competitors. Banks are peddling products that sometimes are only understood by a small club of physicists who used to work at places such as NASA before rocket science became the new profit driver at banks.

But I digress. Our banks are selling stuff that top management can’t keep tabs on, and it’s putting the financial system at risk. Even Dimon showed he was at a loss to explain the Whale blowup when he made his reference to a tempest in a teapot.

JPMorgan’s CEO has another problem: that enormous tab the bank has run up to settle cases with regulators and litigants. In a March 12 report titled “JPMorgan Chase: Out of Control,” Rosner, the Graham Fisher analyst, wrote that he couldn’t find another U.S. bank with such big settlement outlays.

JPMorgan is a master at racking up PR points when it’s boasting about things such as its “fortress balance sheet.” But it has been able to dodge setbacks when it breaks the rules. You have to wonder whether, at some point, it might catch up with the world’s most-admired bank and its magazine-cover CEO.

Hate Follows When the Police Try to Do Their Job


This article originally appeared in Bloomberg View on March 7th, 2013.

It’s a lousier time than usual to be a lowly member of the investing public looking for protection from the sharks of finance.

Deep-pocketed banks are dominating the process of writing the new financial rules mandated by the Dodd-Frank Act, dwarfing the efforts of investor advocates looking to rein in the banks.

At the Securities and Exchange Commission, which is charged with protecting investors, lawbreakers can cut sweet deals for exemptions from punishments before the ink is dry on their settlement papers.

Efforts to help everyday investors, in the meantime, can wind up taking a back seat. Dodd-Frank, signed into law in July 2010, required the SEC to establish and staff an Office of the Investor Advocate. More than 2 1/2 years later, the project is stuck on the agency’s to-do list.

“There’s a basic resistance to seeing things from the investor point of view,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It all goes back to the same thing — the degree to which the industry dominates this whole conversation.”

It’s a cultural problem as Roper sees it: Regulators and the regulated operate in a setting where people with the same pedigree move back and forth between government and private-sector jobs and outside views carry little weight. SEC spokesman Kevin Callahan said in an e-mail that investor protection is at the core of all the agency’s actions, and that until an investor advocate is appointed, existing SEC offices are performing the roles required by Dodd-Frank.

Old Acquaintance

A study released last month by the Project on Government Oversight, a nonprofit watchdog group, stirred up a discussion about the revolving door of lawyers who alternate between government and industry, where they defend banks and brokers. Sorting through documents filed by 419 SEC alumni who had recently left the agency, the Project found 2,000 cases in which alumni planned to represent a client or an employer before the SEC between 2001 and 2010.

That’s a lot of meetings among lawyers who used to work down the hall from one another, but who now — officially, anyway — are adversaries. In the view of SEC critics, it is part of the clubby state of affairs that pushes government watchdogs and banks to see things the same way. Callahan said that the U.S. Government Accountability Office studied the revolving-door issue and concluded that the SEC’s controls were as strong as those of other government agencies. What a relief.

The public’s concern that regulators “are on the same team or focused in the same way as the entities they are supposed to be regulating” is a valid one, New York University Law School professor Rachel Barkow said on a panel at the New York City Bar Association last month. If more of an effort were made to have representatives of consumers at agencies, “you might have a more proactive movement right now to break some of the big banks up,” she said.

For now, the banks throw their weight around. To get an idea of just how much access bankers get to regulators, consider the calculations that Duke University law professor Kimberly Krawiec and Duke lecturing fellow Guangya Liu recently completed. Krawiec and Liu tallied up all the meetings that the Treasury Department, the Commodity Futures Trading Commission, the SEC, the Federal Reserve and the Federal Deposit Insurance Corp. had with various constituencies between October 2011 and December 2012 to discuss the Volcker rule.

Industry Outguns

Public interest groups such as Americans for Financial Reform and Better Markets had 64 meetings with the regulators. The financial industry and its representatives: 551.

Those sit-down meetings “are where the real work is taking place,” Krawiec says. “And the meetings were almost completely dominated by financial firms, their trade groups and their law firms.”

Regulators aren’t turning away public-interest groups that ask for meetings. It’s just that the financial industry has such vast resources that it overpowers the conversation. “Despite a significant expansion in the number of foot soldiers out there working in the public interest on these financial issues, we are still completely overwhelmed by the industry lobbyists,” said Dennis Kelleher, chief executive officer of Better Markets.

It won’t make it any easier to push for reform if the stock market keeps hitting new highs, which inevitably will cause memories of the crisis to fade.

NYU’s Barkow suggested that regulators seek out people from different backgrounds to fill consumer-advocate positions that would carry clout in policy disputes.

There actually is a government agency that has gone out of its way to get diverse views. It is reviled by the banking industry and is under attack by politicians who want to diminish its independence and prevent it from carrying out its mandate. The Consumer Financial Protection Bureau has a consumer advisory board that includes 13 female and 12 male members, four of whom are Hispanic. They have backgrounds in public policy, housing, retirement advocacy and academia.

Compare that to the SEC’s investor advisory committee, which does include Roper and other investor-friendly members but also has two hedge-fund officials, a private-equity executive, a venture capital guy and a director from the Bush Institute, a public policy research group founded by former President George W. Bush and his wife, Laura. The board of governors at the Financial Industry Regulatory Authority relegates two of its “public” seats to retired securities industry officials.

You don’t hear any drums beating to shut Finra or to reduce the SEC’s independence. Show me a financial regulator with real independence and input from diverse voices, and I’ll show you a sitting duck for vicious attacks.

Mary Jo White’s Past and the Future of the SEC


This article originally appeared in Bloomberg View on February 8th, 2013.

The sales pitch for President Barack Obama’s nominee to run the Securities and Exchange Commission goes something like this:

Mary Jo White was a tough U.S. attorney for the Southern District of New York who prosecuted mobsters and terrorists. She spent the past 10 years representing Wall Street, so she knows something about the legerdemain of banksters. And — insert violin solo here — she is a patriot, willing to give up millions of dollars in income as chairman of the litigation department at Debevoise & Plimpton LLP for a lousy government salary. (Although, with a little luck, she will make up for that once she adds “former SEC chairman” to her resume.)

The arguments in support of White are as old and tired as the government-to-private-practice hustle that they endorse.

Her supporters say she has the integrity to shift from Wall Street defender to champion of securities laws. But it’s hard to take seriously the notion that White will help crack complicated cases with her inside knowledge of how the bad guys work, an argument that often gets thrown around when Wall Street lawyers are tapped to be regulators. “People from the private sector know where the bodies are buried,” former SEC Chairman Mary Schapiro told the Washington Post after White’s nomination last month.

Top Spots

Maybe so, but the SEC and Justice Department have had former defense lawyers checking in and out of top spots for years, and it hasn’t led to any big-bank carnage among the people who orchestrated flakey derivatives, self-destructing collateralized-debt obligations or other outrages. When was the last time you saw anyone from a well-known bank doing a perp walk for his role in the financial crisis?

The Web pages of the best-known law firms give an idea of who the real winners are in the revolving door. Debevoise says it’s “the only law firm to have former U.S. and U.K. attorneys general as well as a Queen’s Counsel.” Cleary Gottlieb Stein & Hamilton LLP tallies 10 former federal prosecutors and three former SEC general counsels. At Covington & Burling LLP, they boast of having “convinced the SEC not to pursue an enforcement action” against one client, and that partner Bruce Baird, a former assistant U.S. attorney, persuaded regulators “not to proceed with cases on a significant number of occasions.”

It isn’t often we get an inside look at how onetime regulators work their disappearing-case magic, but a celebrated example that wound up under a microscope involved none other than White. When Morgan Stanley was considering hiring John Mack to be its chief executive officer in 2005, the securities firm’s board was concerned about an SEC investigation into possible insider trading involving Mack and Arthur Samberg, the former manager of the hedge fund Pequot Capital Management Inc.

The board retained White, who called SEC Enforcement Director Linda Thomsen on June 27, 2005, to get intelligence on Mack’s legal exposure. Three days later, White told Morgan Stanley’s board that she had seen “no evidence of any involvement by Mr. Mack in insider trading or other wrongdoing.”

Thomsen had let on to White that there was “smoke but not fire” in e-mails between Mack and Samberg, and privately worried that it could be disruptive to markets if Mack became CEO and then wound up as an SEC target. “It could have ripple effects that makes the markets go haywire,” Thomsen told a Senate committee — an overblown fear if ever there was one.

Wrongful Firing

Mack was never accused of wrongdoing. Gary Aguirre, an SEC lawyer who had been pushing to question Mack, was fired a few months after White’s call. He later won $775,000 from the SEC in a wrongful dismissal suit.

White declined to comment, said Debevoise spokeswoman Gabriella Schoff.

A revamp at the SEC that included improved policies for handling complaints and tips was supposed to boost morale. Yet the SEC’s ranking in an annual employee survey of “Best Places to Work in the Federal Government” has dropped steadily since 2007, with the SEC placing 19th of 22 midsized federal agencies last year. SEC workers’ view of the leadership of the most senior staff was worst among the categories they were asked about.

That makes sense considering some of the private conversations that became public about their bosses. The SEC’s own general counsel (now at Cleary Gottlieb), David Becker, e-mailed former SEC Commissioner Annette Nazareth in 2009 after she had left for Davis Polk & Wardwell LLP and referred to “the inanity” of the idea of having an investor advocate at the agency, according to a Bloomberg News article last year.

It would be nice if White turned out to have what it takes to pump up morale and turn the SEC into a place where inspired investor advocates get the top jobs, but there are reasons to be doubtful. White is worried about being too hard on corporate criminals. She told the newsletter Corporate Crime Reporter in 2005 that prosecutors considering criminal charges should be “very concerned about the impact on the innocent employees or shareholders.”

White won’t play a direct role in prosecuting companies at the SEC, of course. But given her views on indictments, it’s hard to imagine she will encourage her staff to refer cases against companies to criminal authorities.

It’s also a worry that she knows too much about the career perils of being aggressive as a regulator. In talking about one of Debevoise’s hires from the SEC, she testified in a 2007 deposition that she needed to check whether the candidate had been so tough as a regulator that it would hurt his ability “to function well in the private sector.” Commitment to the job and mission is a good thing in government, she said, or at least it is “to a point.”

If we’re lucky, White, 65, will decide that a do-gooder legacy is more important than the next multimillion-dollar job.

Top Stock Picks of 2013 Lose Out to Honey Boo Boo


This article originally appeared in Bloomberg View on January 3rd, 2013.

I have the ultimate hot tip if you’re obsessing over what to do with your portfolio in 2013: Ignore all the “How to Invest in 2013” nonsense that you see in magazines, blogs and on business television this time of year.

My advice? When you see one of those how-to articles, retreat to the kitchen for what’s left of the holiday eggnog and shut off the computer. If some TV stock jock is interviewing a Wall Street star about a best pick for the year ahead, grab the remote and surf for a rerun of “Here Comes Honey Boo Boo.” At least it won’t be you who is being exploited.

There is a good chance that you will lose money if you follow the 2013 top stock recommendations. And the grander the promise of profits, the more you should worry about getting burned.

Personal-finance news became a growing subgenre of business journalism in the 1970s, after companies started dropping defined-benefit retirement plans and the public “was thrown into this system and forced to make their way” says Dean Starkman, who runs a business-journalism blog at Columbia Journalism School. The resulting coverage to help the public manage its own money “perpetuates the idea that individuals can beat the market,” he says, “and that’s just not true.”

An army of commentators, many with abysmal track records, helps spread the useless predictions. You will see them quoted, photographed for magazine cover stories and trotted out for appearances at investor conferences.

“The entire conversation is corrupt,” says Starkman, who sees much of personal-finance writing as marketing material for the investment industry.

Few Exceptions

With a smattering of exceptions, even the best of the annual how-to-invest offerings will leave you winning about half the time, which of course means losing half the time. And what’s the point of paying commissions to end up where you started? Smart Money’s “Where to Invest 2012,” for example, picked six winners and four losers. The “Guru Round Up: Best Investment Ideas for 2012” that ran in Forbes magazine on Jan. 4, 2012, had three winners and four losers.

Even when a best-stocks list manages to keep up with the stock-market averages, which you can do in an index fund, it doesn’t necessarily help actual investors. My guess is that investors in real life don’t have the resources to buy more than one or two of the recommendations on any given tout list. Buy the wrong one, and it doesn’t matter if the list’s author is taking a bow for outperforming the Standard & Poor’s 500.

Along with the year-ahead coverage, be wary of the ambitious journalistic efforts that purport to impart brilliant investment ideas for the long term. Fortune magazine’s August 2000 list of “10 Stocks to Last the Decade” included Enron Corp. (which failed), Nokia Oyj (which fell from $43 to $9.63 during the next 10 years), Nortel Networks Corp. (which filed for bankruptcy protection in 2009) and Broadcom Corp. (which fell from $143 to $36 during the decade after the article).

In case no one has let you in on the secret, it’s old news that money managers rarely beat the stock-market indexes. So why pay attention when some journalist under orders to interview those managers woos you with headlines that promise a winning list of investments for the year ahead?

Ditto for the usefulness of predictions as to which way the markets and the economy are headed. Beneath the headline “Little Enthusiasm for Equities Among Advisers,” Investment News, a newsletter that caters to investment advisers, said on Jan. 1, 2012, that only 43 percent of advisers planned to increase their clients’ equity holdings, down from 63 percent in 2011. The S&P 500, of course, proceeded to go up 13 percent in 2012, the year advisers were more negative. It was little changed in 2011, the year they expected significant gains.

And then there was arguably the worst market call of the year, made Jan. 23, 2012, by newsletter writer Joseph Granville. He told Bloomberg Television that day that the Dow Jones Industrial Average would decline 4,000 points by year-end. The Dow wound up rising 887 points.

Terrible predictions ought to be career killers, but they aren’t. “There is no prediction so stupid you won’t be invited back,” Starkman says. Apparently so. Donald Luskin, the Trend Macrolytics LLC chief investment officer who is a contributor to CNBC, wrote in the Washington Post on Sept. 14, 2008, that doomsayers on the economy had it all wrong. The facts suggested that we were not on the brink of a recession, but of “accelerating prosperity,” he wrote. Lehman Brothers Holdings Inc., of course, collapsed the next day, shifting the financial catastrophe of 2008 into overdrive.

‘Batting Average’

Myron Kandel, founding financial editor at CNN, says there is a way to raise standards. Qualified professionals should be used as sources, Kandel says, and the public should be told how the person’s past predictions have fared. Otherwise, it’s “like evaluating a baseball player without mentioning his batting average,” he says.

That sort of policy might not sit well in a personal-finance industry where everybody except the small investor seems to profit from the status quo. Barry Ritholtz, the chief executive officer of Fusion IQ, said he once had the temerity to ask a magazine editor if he could contribute an item about the foolishness of financial forecasting after having been invited to write a forecast for the 2004 stock market. The editor advised Ritholtz that it was a big double-issue that sold a lot of advertising, and the format wasn’t going to change. “So do you want to be in it or not?” the editor asked. Ritholtz dutifully wrote up his prediction of a year-end Dow close of 10,403 (it ended the year at 10,783).

I can, with confidence, pass on this one prediction for 2013: A lot more experts will dole out financial advice. Few will say anything worth listening to.

Every Mistress Needs Someone to Play Sugar Daddy


This article originally appeared in Bloomberg View on December 3rd, 2012.

I know we’re just settling in with our popcorn for the scene where the lawyers and PR handlers transform disgrace into opportunity for the players in the David Petraeus story.

Already Petraeus is on the contrition circuit, saying last week he “screwed up royally.” Why next thing you know, he will be nominated to replace Hillary Clinton at the State Department.

But before we move on to “Act II: The Image Rehab,” could we clear up this business about how women get depicted when the stuff hits the fan in a scandal?

Some of you are feeling sad that Petraeus, the retired four-star U.S. Army general who had an affair with the author of his biography “All In: The Education of General David Petraeus,” had to quit his job as Central Intelligence Agency director last month after admitting to an extramarital affair. “They threw this poor fellow to the wolves,” celebrity divorce lawyer Raoul Felder told the Daily Beast’s “Beast TV.”

Poor fellow, indeed, getting his reputation tarnished for engaging in indiscretions with Paula Broadwell, a married woman who surely must be responsible for the fall of our military hero, considering media commentary that dubbed her a slut and a cunning seductress.

How could this bad result have come to such a good guy?

“From what we know now, he wasn’t an alcoholic or a drug addict — something that might impair his thinking,” wrote columnist Susan Reimer in the Baltimore Sun. In fact, “he did nothing truly weird, like Rep. Anthony Weiner, who sent those cell-phone pictures of his crotch to random women.”

Behold Man

He probably wasn’t a bank robber or an animal abuser or an inside trader, either, and from what I can tell, the only things he is guilty of are cheating on his wife and a surfeit of professional preening.

But there is something a little bit off when one party to a sex scandal is congratulated for the sins he managed not to commit while the other gets attacked as “a shameless, self promoting prom queen,” which is the way Broadwell was described by an unidentified military officer in the blog Business Insider. (Memo to Mr. Unidentified Military Officer: Next time you get on the phone for a media interview, show a little military-style courage and attach your name to those smears.)

Petraeus is no stranger to self-promotion himself, and several writers have called him out both for his assiduous courting of the reporters who covered him and for his tacky decision to adorn his civilian clothes with military medals for a recent speech in Washington.

But that self-promotion hasn’t led to any portrayals of Petraeus as “a shameless self promoting prom king.”

I have, though, seen a lot of stories that referred to Broadwell as Petraeus’s mistress. And so has J. Nathan Matias, a research assistant at the MIT Center for Civic Media who studies gender representation in the media. Matias used a news database called Media Cloud to get an idea of how Petraeus and Broadwell were being depicted in mainstream media and in blogs, and noticed that the word “mistress” was being used in such varied places as USA Today, Newsweek and Slate.com. Bloomberg View and Bloomberg Businessweek have also referred to Broadwell as his mistress.

“If I were trying to write a piece, I wouldn’t refer to her in that kind of possessive way,” Matias told me. “I’d try to find language where I’d say they were having an affair, and identify her in terms of who she is in society, just as they are identifying Petraeus.”

Readers coming across the word “mistress” tend to visualize a woman who provides sex in exchange for cushy, rent-free living and a lot of high-end shopping, Matias said. That label is “kind of demeaning” in any event, he said, but doesn’t even apply in the case of Broadwell, a lieutenant colonel in the U.S. Army Reserve, a West Point graduate and recipient of two master’s degrees.

Lost Virtue

“She is getting the typical response to the scarlet letter woman — he is a man, so he’s weak, but she is crazy, demonic and a threat to national security,” said Victoria Pynchon, a blogger on negotiation and women’s issues at Forbes.com. “He’s mostly getting a pass, and the women in this story are getting no pass.” Equal treatment in the media would at least make Petraeus the sugar daddy to Broadwell’s mistress, wouldn’t you think?

In a blog post that managed to squeeze in the word “slut” four times, the conservative commentator Robert McCain noted that Broadwell had conducted interviews with Petraeus while the two were jogging, which apparently is reason to conclude “the slut was very cunning in her seduction.” Even the Washington Post found a way to present her as conniving, noting that she was “willing to take full advantage of her special access” to Petraeus while researching her book.

Petraeus, meanwhile, was described by an unnamed friend (does anyone talk for the record on this story?) as being “vulnerable” after leaving the camaraderie of the military to take the CIA post.

In the Baltimore Sun story, the author suggested “we need to learn to get past these bimbo eruptions.” Bimbo, from dictionary.com, is “an attractive but stupid young woman, especially one with loose morals.” What we really need to work on is getting journalism schools to teach students the apparently lost art of looking up words in the dictionary.

There’s No Business Like the Brokerage Business


This article originally appeared in Bloomberg View on November 1st, 2012.

If regulators and brokerage firms are serious about restoring public confidence in the markets, they will have to do better than they did in the pathetic case of Mark C. Hotton.

Hotton is the 46-year-old former stockbroker who allegedly duped the producers of the Broadway musical “Rebecca” into believing he had lined up $4.5 million in financing. According to law enforcement officials, he even concocted a fictitious Australian guy, Paul Abrams, who would have been good for $2 million if only he hadn’t keeled over from malaria when it was time to write his check. While the clueless backers fell for his stories, Hotton pocketed finder’s fees. “Rebecca” has been “postponed indefinitely,” according to the show’s website.

It’s distressing, but it shouldn’t have come as much of a surprise from a man whose brokerage industry records since 1993 reveal a stolen-property charge, 16 customer disputes, a firing, a lien and a bankruptcy.

The real disgrace here isn’t Hotton, who is being held without bail after his arrest on two counts of fraud last month. The bigger scandal is trumped-up claims like this one:

“Ultimately, Hotton’s imagination was no match for the FBI, which uncovered, with lightning speed, his alleged financial misdeeds,” said Manhattan U.S. Attorney Preet Bharara in an Oct. 15 press release.

Lightning speed? Now that is what I would call a real whopper.

First Queries

I first began to contact Hotton’s lawyers a year ago this month when I saw that Hotton continued to work as a broker after filing for Chapter 7 bankruptcy, but they weren’t very talkative. Michael S. Finkelstein, a lawyer on Long Island, told me to call him back at 4 p.m. on Nov. 22, but didn’t answer that day, and never responded to voicemails. Similarly, voicemails and e-mails that I left with three other Hotton lawyers since Oct. 8 after the “Rebecca” flap erupted have gone unanswered. I couldn’t reach Hotton for comment.

Hotton has faced allegations of financial misdeeds as far back as 1990, yet moved on to work at six brokerage firms, including Ladenburg, Thalmann & Co. and Oppenheimer & Co. He was accused of fraud in multimillion-dollar lawsuits filed before anyone involved in “Rebecca” had ever heard of him. But there was nothing speedy about law enforcement’s response until the victims were attention-grabbing show-business types.

Hotton got a modest $60,000 from the producers of “Rebecca,” according to the U.S. attorney, and I suppose the crack investigators at the Federal Bureau of Investigation deserve credit for getting to the bottom of one of his punier swindles.

Anyone truly interested in watching out for the public might have started paying attention after Hotton bounced a check for $31,550 to Vilsmeier Auction Co. in Montgomeryville, Pennsylvania, on April 25, 1990. Hotton took possession of a 1985 Ford van and three other vehicles, thanks partly to a forged letter from a Westminster Bank officer assuring that his account had sufficient funds. Four months later, the real manager at the bank said in an affidavit that the letter was bogus and signed by a person who didn’t exist.

People who bounce checks and forge documents don’t belong in the securities business, but Hotton, who pleaded not guilty to two fraud counts last month, managed to get a broker’s license three years later anyway.

I asked Michelle Ong, a spokeswoman for the Financial Industry Regulatory Authority, how a broker like Hotton could stay in the business as long as he had. She said that before 2009, the complaints against Hotton had either been denied by his employers, or “settled for little money.” She says Finra began to investigate Hotton in 2009. That’s nice, I suppose, but three years later, Finra still has not announced any sanctions.

Finra Knew

Ong said that Finra knew Hotton had been convicted of criminal possession of stolen property, which apparently isn’t enough to convince regulators that a broker shouldn’t be in charge of other people’s money.

In the securities business, there is this brilliant idea that firms have a self-interest in tossing out bad guys. So I checked in with two firms that employed Hotton. I sent a list of 11 questions about Hotton’s criminal record and customer complaints to Paul Caminiti, a spokesman for Ladenburg, and all he had to say was that Hotton left the firm in 2005 to join Oppenheimer.

It gets worse.

On Oct. 15, the day Hotton was arrested, I called Noah Sorkin, a securities lawyer who worked at Oppenheimer when Hotton was there. Today, Sorkin is general counsel in New York at AIG Advisor Group, a network of independent brokers. “Lemme do this if it’s OK with you,” he said when I began to ask about Hotton. Sorkin said he would be happy to chat with me, but would first have to talk with lawyers at Oppenheimer. I’m still waiting for that call back.

An Oppenheimer spokesman, Brian Maddox, said this: “Investigations were conducted by both Oppenheimer and a securities regulator and no evidence of misconduct was uncovered. Any claims involving Mr. Hotton’s activities came to Oppenheimer’s attention after he left Oppenheimer.” He added that Oppenheimer employees who hired Hotton are no longer with the firm.

That probably would come as a surprise to Philip R. Schatz, a lawyer who filed an affirmation on June 25, 2010, in a multimillion-dollar lawsuit against Hotton while he was working at Oppenheimer, which wasn’t named as a defendant. Schatz said that, in previous lawsuits he had been involved with, Hotton’s actions at Oppenheimer and Ladenburg left him with serious reservations about the broker. In fact, he wrote that he had urged Sorkin in 2006 to investigate Hotton. “I told Mr. Sorkin that if I were in his position, as a matter of prudence, I would conduct a thorough review” of Hotton’s history, he wrote.

Yet for almost three more years, Hotton worked at Oppenheimer before moving to another firm. His story is but the latest example of the joke that securities regulation has become.

‘Dumb Money’ Is Staring Most of Us in the Face


This article originally appeared in Bloomberg View on October 4th, 2012.

Financial pros have a long history of sneering at mom and pop investors as “the dumb money,” all the while cashing in on commissions each time a sucker sells at the bottom or buys at the top.

Now the U.S. Securities and Exchange Commission has made it official: The investing public doesn’t know what it is doing.

It took an act of Congress and 182 pages for the SEC in August to publish its “Study Regarding Financial Literacy Among Investors,” an exercise mandated by the Dodd-Frank Act of 2010. The study’s grim statistics showed that about half the investing public can’t read a stock trade confirmation and two-thirds can’t figure out how much their adviser would pocket on the sale of mutual-fund shares. After being shown documents for an account in which a customer’s broker used an outside custodial firm to hold the securities and issue the account statements, only a quarter could identify the custodian. There is more where that came from, but you get the idea.

Consider the profile of the 4,800 investors surveyed for the report, which concluded that they “lack basic financial literacy.” More than half had full-time jobs, 11 percent had part-time jobs, 70 percent had at least a two-year college degree and 63 percent had annual income of more than $50,000. We’re not talking about Mitt Romney’s indolent moochers here. The dumb money could be your neighbor. Or you.

Getting Taken

Of course, there’s ample evidence by now that you didn’t have to be Uncle Charlie in the nursing home to wind up parking your money with Bernard Madoff, or to sign up for designed-to-fail collateralized-debt obligations from Goldman Sachs. Smart money can be clueless, too.

For the moment though, let’s stick with investors who don’t work on Wall Street and don’t have an inkling that the worthwhile initial public offering is the one they will never be able to buy. So we have this new information about the public’s failure to understand finance. What do we do with it?

The report has been a jumping-off point for a lot of feel-good proposals that, sadly, are dead on arrival. The SEC says it got “many comment letters” advocating a “comprehensive financial literacy program in the United States that starts in elementary school.” Hey, a new education program sounds great. But try that one out on your strapped local school principal.

And maybe ask those principals how just plain old, non-financial literacy is working out. On Sept. 24, the College Board said reading scores on the SAT were the lowest in four decades. How do you teach people to read prospectuses when they have trouble reading at all?

The weird thing about the SEC’s comprehensive look at the failings of U.S. investors is that the effort comes even as a new law is about to unleash a flood of fresh hazards on the public. On April 5, President Barack Obama signed the Jumpstart Our Business Startups Act, a stunning piece of deregulation that will relax disclosure rules for some public companies and allow Internet stock offerings through what is known as crowd-funding.

So even as we learn that investors need more education about basics, we set them up as prey for a whole new genre of rip-offs.

There are some solutions here, and the quickest fixes are the ones that make investors smarter about fraud, not about computation of mutual fund fees:

Brokerages should be required to give customers a copy of an adviser’s regulatory record before they can open an account. Along with that, firms should reveal the number of times a broker has had a case expunged from his or her record (I’d look for a new broker if that number was more than one) and send a recap of every bankruptcy filing, every sanction by a professional organization and every lawsuit filed against the broker in state or federal court.

Head Scratching

I was heartened to see that 37 percent of the investors in the SEC study said they actually checked a broker’s records, but it was a head-scratcher that 21 percent didn’t consider “allegations or findings of serious misconduct” to be important. Get these facts under customers’ noses and make it hard for them to avoid considering them.

Firms also should explain in writing the terms of the relationship to new customers. I don’t mean boilerplate disclosures about the odious policy of mandatory arbitration that lets firms avoid court. There should be a statement in plain English saying what the firm promises. “Dear Mrs. Smith: We may say in our glossy ads that you are a valued customer, but we don’t have to put your interest before ours, and if you want to sue us, you will have to prove that we sold you something that wasn’t suitable, which is a lot harder than proving we weren’t working in your best interest.” OK, so the wording could be more delicate, but either way investors should get the broker’s commitment in writing.

Lazy investors (like the one who told the SEC, “If you can’t put it on a 4 x 5 card, I don’t want to deal with it”) should at least take smart shortcuts: First, go through the indecipherable documents your broker sent you and read the footnotes, which will at the very least arm you with material for your next cocktail party. After that, look for these words or terms: “certain proceedings,” “conflict of interest,” “fraud,” “Wells notice,” “litigation,” “Securities and Exchange Commission,” “cease and desist” and “not FDIC.” You will find all of them in the sections the smart money hopes you never read.