Study Hard and You’ll Become Financially Literate? Not So Fast

For Financial Literacy Month, I put together a reading list, an “investor help” list and some videos for TheStreet Foundation.

The reading list is here.

The “investor help” list is here.

Here’s an interview I did with Helaine Olen, author of Pound Foolish: Exposing the Dark Side of the Personal Finance Industry.

And here’s a Q&A with Remar Sutton, volunteer chairperson at FoolProof, a rare financial literacy effort that actually gets results.

Looking To Get Financially Literate? Don’t Expect Business “Educators” to Help

April is Financial Literacy Month, which is supposed to be a time when we marvel at the progress we’ve made in making the public smarter about finance.

Yet after nearly two decades of effort, the studies not only show little progress, but actual backsliding in the public’s financially savvy.

The problem has much to do with who’s in back of most literacy efforts: business. A credit card company isn’t going to warn you not to spend more than you can pay off in a given month, and a brokerage firm isn’t going to send you to Finra’s BrokerCheck to be sure you’re broker isn’t a sleazeball.

I wrote about the problems with literacy efforts in my column for TheStreet. You can read it here.

Like Anita Hill vs. Clarence Thomas, Ellen Pao Lost Kleiner Perkins Gender Fight But Women Gained

Sometimes, even a loss can be a win.

A San Francisco jury said last month that Kleiner Perkins Caufield & Byers did not discriminate or retaliate against its former junior partner, Ellen Pao. From my column for TheStreet.com:

The four-week trial had received intense media coverage for its allegations of porn-star talk in business settings and exclusion of women from company events. Rather than invite a woman on a company ski trip, “Why don’t we punt on her and find 2 guys who are awesome?” a Kleiner partner suggested in an email.

Pao lost. But women didn’t. The case brought huge attention to workplace issues that rarely get aired. Most employers require employees to agree to give up their right to sue before they even show up for the first day of work. So-called “mandatory arbitration” agreements keep gender discrimination complaints out of the public eye, and leave violators of our discrimination laws unaccountable.

You can read my column here.

Wall Street Waging War Against Making Brokers Accountable to Investors

Securities and Exchange Commission Chair Mary Jo White told members of the House Financial Services Committee yesterday that there would be “many challenges” in changing the rules so that stock brokers and investment advisers are similarly regulated.

That’s an understatement. Wall Street has been on a tear for years fighting efforts to demand more of stock brokers. From my column yesterday for TheStreet:

As things stand today, brokers need only sell “suitable” investments that match a client’s investment profile. But they needn’t act as fiduciaries who are duty-bound to put clients’ interests ahead of their own, as investment advisers are expected to do.

You might think it’s a no-brainer that people doing essentially the same job in the financial industry should be subject to the same rules, but you’d be thinking wrong.

There are two fights going on related to the duties of investment advisers and brokers. There’s the one Ms. White has a say in: Changing the rules so that brokers and advisers both are expected to put their clients’ interest ahead of their own — a so-called “fiduciary duty.” And there’s another related to retirement money. The Department of Labor would like to raise the standards for people giving advice in that arena, too. President Barack Obama publicly supported the idea on Feb. 23.

The unsightly battle that has Wall Street fighting to avoid a more ethical approach to its customers is the latest reminder of the gap between the way the industry portrays itself in its marketing, and the way it actually treats its customers. From my column:

“These guys advertise like doctors and lawyers and litigate like used car salesman,” said Joseph C. Peiffer, president of the Public Investors Arbitration Bar Association, or Piaba, a group of lawyers who represent investors in securities arbitration.

You can read the story here.

Ellen Pao’s Case Against Kleiner Perkins Has Porn Star Talk, High Stakes for Women

Twenty years ago, there was Smith Barney’s Boom-Boom Room. Today, it’s Ellen Pao v Kleiner Perkins, the very high-profile sex discrimination trial that’s been going on for four weeks in San Francisco Superior Court.

Pao was a junior partner at Kleiner from 2005 to 2012, when she was fired. She says the firm discriminated against her, leaving her out of important meetings and passing her over for promotion while men moved ahead. Kleiner says she was a difficult employee who had a “female chip on the shoulder.” I wrote about it in my column today for TheStreet.com:

Among the affronts she has shared with the jury are the story of the female partner on a business trip who opened her hotel room door to see an uninvited Kleiner partner holding a bottle of wine and wearing his bathrobe; the co-ed business flight on a private jet where the conversation turned to porn stars; and the Kleiner meeting where a male partner approached a female partner to ask her to take notes. When the woman declined, he asked Pao to do it.

If Pao loses, it won’t bode well for women with grievances in the future. Women considering a lawsuit could wind up being warned “You know what happened to the woman in San Francisco,” said Linda Friedman, the Chicago lawyer who brought gender suits against brokerage firm Olde Discount Corp. in 1995, Smith Barney in 1996 and Merrill Lynch in 1997. You can read my story here.

 

4 Things Kleiner Perkins Doesn’t Want Jury to Hear in Ellen Pao’s Sex Bias Case

Oral arguments are expected to begin Tuesday in the sex discrimination case against the powerful Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers.

Ellen Pao, who sued Kleiner nearly three years ago, accused the firm of gender discrimination, failure to prevent discrimination and retaliation. I wrote about her case in my column for TheStreet last week.

Pao, who is interim CEO of the micro-blogging site Reddit, says that after she complained of discrimination at Kleiner, she went from being a star among junior partners to an employee viewed as a whiner who had “issues and clashes” with colleagues. She says one coworker badgered her into having an affair, and that a partner at the firm gave her a copy of a book of poetry with sexual imagery.

Kleiner has asked the judge to clear the courtroom when there’s evidence being presented about its proprietary business information and financial performance, among other things. Even if it wins on that motion, there are sure to be plenty of fireworks that remain for public consumption.

When Pao filed her suit in 2012, I noted this about the sad history of women in the workplace a column for Bloomberg View:

Twelve of Kleiner’s 49 partners are women, and in the venture-capital business, that’s considered very, very good. How is it that 20 years after Anita Hill broke the silence about gender discrimination and harassment at work, there are still companies that can take a bow for being gender-equality heroes when 75 percent of their leaders are men?

You can read the Bloomberg column here. The more recent column for the Street is here.

Why Only Big Bankers Can Flout the Rules and Get Away With It

Did you hear the one about the stock promoter, the lawyer, three figurehead CEOs and seven auditing firm partners?

No, it isn’t a “walks into a bar” joke. It’s a case brought by the Securities and Exchange Commission last month against the players in a sham stock offering. The agency went after all the people involved in what it called ”a massive scheme to create public shell companies through false registration statements.”

No big deal, right? The SEC is supposed to be going after bad guys, making them pay fines and lose privileges. But it tends to do a lot better in cases against no-name boiler room types like the ones in the January case than it does with players at powerful banks.

In my column for TheStreet this week, I discussed the contrast in enforcement results between cases against small players and cases against Wall Street’s elite.

In December, for example, the Financial Industry Regulatory Authority, or Finra, brought cases against ten household name firms for flouting the rules that govern research analysts when their firms are pitching for initial public offering business. In its complaints against the firms, Finra described the actions of specific people who broke specific rules. But we never learned their names. Indeed they weren’t charged at all.  You can read my column here.

Even Snowden Would Have His Hands Full Cracking Wall Street’s Arbitration Secrets

Say you hire a broker. You start out thinking he or she is terrific, of course, or you wouldn’t have signed up in the first place.

And then they wind up churning your account. Or putting you into mutual funds only because the funds generate high fees — for the broker, not you. Or persuading you to buy high-risk products that have no place in a portfolio like yours.

So you get around to thinking you’d like to sue. Well, tough luck, Mr. or Ms. Investor — you can’t. The day you opened that account, you signed a document saying you’d be willing to give up your right to court, and that you’d instead use Wall Street’s private arbitration system if your broker fleeced you. Welcome to Finra arbitration.

Public-minded politicians have tried for years to get laws passed to ban so-called “mandatory arbitration,” but all their efforts have failed. Wall Street’s lobby is a powerful one. Recently, though, a coalition of consumer groups wrote to a task force of the Financial Industry Regulatory Authority (Finra), which runs Wall Street’s arbitration,  pressing for more disclosures about investigations of Wall Street’s private tribunals.

In my most recent column for TheStreet, I talk about the secrecy that surrounds Finra arbitration. You can read the column here.

 

Case “closed” on accounting problems at RCS Capital, but were problems fixed?

It was only three months ago that RCS Capital Corp. told shareholders in a quarterly report  that it was in the process of remediating “several significant deficiencies” in its internal control over financial reporting. Since then, shareholders have been told that all is well — sort of. But the company has not specifically told shareholders that the deficiencies have been addressed and solved.

RCS is the holding company for a collection of brokerage firms and other financial companies. One of them, J.P. Turner Associates, was purchased by RCS this year, and has a horrific history of customer complaints and regulatory action against executives at the top of the company. Here’s my story about Turner.

Along with its bad judgment in picking acquisition targets, RCS also has the baggage of having employed Brian S. Block as its CFO for most of 2013. Block is the guy who resigned under a cloud on Oct. 29 as CFO of American Realty Capital Properties Corp., which announced that he and another senior financial executive had intentionally covered up an accounting error. Both RCS and American Realty Capital Properties are controlled by real-estate mogul Nicholas Schorsch.

On that news, shares of both RCS and American Realty Capital Properties plunged.

Since then, RCS has said publicly that it hired a law firm and forensic accounting firm to examine the books for the first nine months of 2013. That was a period when Block was signing off on the financials. Michael Weil, CEO of RCS, said in a conference call with analysts on Nov. 13 “We consider the question of RCS Capital’s accounting integrity as closed.” But the forensic probe was limited. For example, it didn’t include an examination of emails.

RCS first flagged its accounting deficiencies in its March 31, 2014 quarterly report. It subsequently mentioned the deficiencies in filings on May 6 and May 29. Among other problems, it noted in the May 29 filing that its auditors had been given “multiple versions” of the company’s books and records.

In other words, seven months before Block resigned in the American Realty Capital Properties scandal, RCS was noting significant problems in its accounting during the period Block was its CFO. The company of course could have brought that up in its analyst call last week, and if it was all fixed, management could have said so.

Instead, RCS carved out a nine-month period, authorized a limited investigation, and declared that the issue was closed. To really close it, though, RCS needs to tell what it did about the deficiencies it mapped out in that May 29 filing, and why investors can be assured that problems like that won’t happen again.

RCS, by the way, declined to comment when I sent a detailed list of questions to its outside PR firm. Here’s the story I wrote about it for TheStreet.

DeMarse: Journalism Schools Over 70% Female, Newsrooms, 60% Male

Seventy percent of journalism school students are women, as are 76 percent of students in Columbia University’s prestigious Master of Arts in Journalism program. So what gives that in real-life newsrooms, 60 percent of the seats are filled by men?

I learned those statistics last night at the annual fundraising gala of The Knight-Bagehot Fellowship, a treasure of business journalism that’s been educating mid-career journalists for one-year stints at Columbia University for 39 years.

The keynote speaker was Elisabeth DeMarse, chairman, president and CEO of TheStreet, Inc. From her talk:

“So Columbia J School is doing its bit — it’s manufacturing a trained, credentialed pipeline of female talent. But we are out of synch. There is a gap in hiring and promotion. There is a gap in giving women and minorities a fair chance.”

And a call to action to younger men more prone to being gender- and color-blind:

“Please be leaders. Please hire and help and lift a hand outside of your image, outside of a narrow idea of clubhouse chemistry. After all, isn’t journalism about fairness and objectivity?”

I am not a neutral commentator on Elisabeth. I’m a journalism fellow at TheStreet Foundation and have known her since I joined Bloomberg News in 1995. (She worked for that guy who became mayor of New York City). So I’m biased. That said, consider the closing of her keynote address, and judge for yourself.

Here’s her closing on gender issues: Continue reading

Unfazed by Finra Charges, Seniors Still Swoon for David Lerner Pitch

Elderly investors are looking for yield. And elderly investors are suckers for a free meal. Put the two together and you’ve got a recipe for packing the grand ballroom of a Marriott hotel with 300 sixty- and seventy-somethings who are prime targets for a brokerage firm looking to peddle illiquid investments.

David Lerner Associates, a Syosset, N.Y.-based brokerage firm whose founder was barred from the securities business for a year in 2012, is still out there wooing seniors to break bread at a local hotel and hear the pitch for its investments.

I went to one of those dinners at a Marriott hotel in Trumbull, Conn. in June, and wrote about it in my column tonight for TheStreet Foundation. Prominent in the pitch that night was the firm’s non-traded real-estate investment trust, a highly illiquid investment that I sure wouldn’t want my elderly mom to buy.

What’s stunning is that investors trip over themselves to attend Lerner events despite the firm’s history. From my story:

Finra said in a complaint on May 27, 2011 that Lerner and his firm targeted many “unsophisticated and elderly” clients to sell illiquid non-traded real-estate investment trusts that were concentrated in the hotel industry. The firm used misleading marketing techniques to sell the REITs, Finra said. In the months after the complaint, Finra said Lerner sent letters to 50,000 customers in an attempt to “counter negative press.” And even those letters had “exaggerated, false or misleading statements,” according to an amended Finra complaint on Dec. 13, 2011. The $14 million in fines and restitution against the firm was Finra’s largest monetary sanction of 2012, said Michelle Ong, a Finra spokeswoman.

You can read the story here.

Can Goldman Sachs’ Women Make the Cut at ‘Extreme Jobs?’

Here’s the latest in the long-running battle between Goldman Sachs and the women who sued the firm in 2010 for gender discrimination:

Both sides in recent weeks have filed dozens of briefs and exhibits, mostly focused on the women’s request earlier this year that the court grant them class status so that they can represent 2,300 current and former associates and vice presidents who allegedly were discriminated against in pay and promotion policies. Among issues that have come up: Whether women at so-called “extreme jobs” like the ones at Goldman simply can’t cut it.

Goldman trotted out Michael A. Campion, a Purdue University management professor, to make the  case. While Campion testified that he did not have the data to draw a conclusion as to whether women make less because of the demands of an extreme job, he said it is “plausible” and that “it’s a consideration that’s not minor.” I talk about Campion’s theory in my column today for TheStreet Foundation.

Goldman Sachs Doesn’t Want to Be Known as Misogynist ‘Vampire Squid’

On July 3, Goldman, Sachs & Co. submitted a 74-page memorandum of law and declarations of 27 Goldman Sachs witnesses to Judge James C. Francis of the U.S. District Court for the Southern District of New York and to three women who are suing the firm for gender discrimination.

So where are the documents?

The high-profile case of Cristina Chen-Oster et al. v. Goldman, Sachs & Co. et al. has been going on since Chen-Oster and two other former Goldman women sued in 2010. On July 1, the women’s lawyers filed a brief asking the court to certify them as a class. I wrote about the heavily redacted document in this story for TheStreet.

On July 3, Goldman filed its response. But 16 days later, it still is not on the court docket.

As it turns out, Goldman has been at work redacting that document over the past two weeks, and you can’t help but wonder what it is that the firm is so hellbent on keeping from the public. I raised that question in my latest column for TheStreet. You can read it here.

Goldman Sachs Women Say They Make Less Than Men Who Frequent Strip Clubs, Call Them ‘Bimbos’

Four years ago, a former Goldman Sachs & Co. executive and two of her former colleagues sued the firm, alleging sex discrimination and asking to be certified as a class.

Today, the women filed documents that added to an extensive dossier of allegations. Among the filings was a request that a judge in the Federal district court in Manhattan allow H. Christina Chen-Oster and her co-plaintiffs to proceed in their suit as a class representing a class of women who work — or worked — at the bank.

I wrote about the latest round of filings for TheStreet Foundation today. You can read my column here, but here are a few highlights:

There are the strip clubs. The guys who organize departmental golf games and don’t invite the women. The liberal use of the word “bimbo” to describe Goldman women, many of whom graduate from the same Ivy League schools the men do. And, of course, the very discouraging numbers about pay and promotion. But the biggest deal about Chen-Oster’s brief filed in U.S. District Court for the Southern District of New York court July 1 seeking class action status is the redactions. Because even when women and their lawyers fight bitter battles to get their hands on important documents that expose discrimination, companies always seem to find a way to keep the public from hearing about the worst stuff.

Brokerage firms put an immeasurable amount of energy into making sure the public never sees the real numbers on women, promotions, and compensation. And they get apoplectic  at the idea that the public might read allegations like that of former Goldman employee Shanna Orlich, who says she went to a holiday party in 2007 where a male managing director had hired women clad in “short black skirts, strapless tops, and Santa hats” to mingle with the Goldman men.

And yet, somehow, what started as a cluster of professional women at Goldman has mushroomed into a very important case.

Still, there’s much we don’t know.  Take a look at the latest filing and scroll through to see the thick black lines that keep you from hearing the whole story.

Finally, the Regulators Are Trying to Protect You. But It’s Nothing But Bad News for Investors

Finra, which is the outfit that Wall Street pays to regulate itself, is pushing hard on a proposal that it thinks will help nail bad guys on Wall Street.

It sounds great on the surface: Give arbitrators permission to refer a rogue to the director of enforcement even as an investor’s hearing is going on. You know, so we can catch people like Bernie Madoff, who was such a trusted name on Wall Street that he was chairman of the Nasdaq Stock Market.

As of now, arbitrators have to wait until a hearing is over before they can tell headquarters that a villain is on the loose. Finra wants to be able to get on the case ASAP.

Nice idea, if only it didn’t have the potential to wreak havoc on the arbitration hearing of the poor slob who’s in the middle of trying to get his or her case resolved. It’s yet another example of the nutty things that can happen when you bar investors from going to court, where you don’t have all the secrecy of arbitration and thus don’t have to jump through hoops to figure out ways to get the word out. Here’s my story published tonight on TheStreet.com.

Anworth Mortgage, Your Greed is Showing

“Do your homework” sounds like reasonable enough advice when you’re leafing through a personal finance magazine or listening to the babble of the talking heads on a financial show. But is it practical?

In my story today for TheStreet Foundation, I write about a publicly traded real-estate investment trust, Anworth Mortgage Asset Corp. Its shareholders will vote at the company’s annual meeting today to determine whether the current board will be ousted in favor of a group proposed by activist investor Arthur Lipson.

I’m not so interested in the pyrotechnics of the fight itself. I’m just wondering if there’s any way that a shareholder without a private investigator’s license could possibly understand the far-flung activities of Anworth management without quitting their day jobs. From my story:

A thorough vetting of the company’s officials would take an investor from Anworth’s standard filings with the Securities & Exchange Commission to a hodge-podge of regulatory documents that occasionally outline mishandling of investor money by stock brokers who worked for a brokerage firm controlled by the CEO.

We really ought to stop giving the public the impression that if they just took the time to read an annual report, or a prospectus, or whatever, that they can take control of their portfolio and stay on top of things.

It’s my first column as founding journalism fellow at TheStreet Foundation, and I’m looking forward to producing more. You can read the column here.

Founding fellow, TheStreet Foundation

TheStreet Inc. announced last week that I will be the founding fellow at its newly formed foundation to support investigative journalism and promote financial literacy. It’s a wonderful opportunity for me to continue writing stories that hold financial institutions and regulators accountable when they neglect or abuse the public.

TheStreet Foundation is the brainchild of CEO Elisabeth Demarse, and will be run by Vanessa Soman, General Counsel at TheStreet. TheStreet’s Chief Investment Officer, Stephanie Link, is Chairman of the Board of the foundation.

“We are thrilled to name Susan Antilla as our Founding Fellow and to help her continue her insightful and impactful reporting,” Ms. Soman said in a press release. “Investigative journalism has become a thing of the past in many newsrooms, but The Street Foundation’s efforts will help keep original reporting alive and consumers informed.”

You can read the full press release here.