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.
Brokerage firms are up in arms over a proposal by one of their regulators to collect information about customers’ accounts and use it to keep tabs on salespeople.
That may sound like a great idea on the face of it, but the regulator in question, the Financial Industry Regulatory Authority, or Finra, gets its funding from the firms it’s supposed to be regulating. And those firms don’t like the idea of sharing data on their customers’ buys, sells and portfolio positions.
I wrote about the battle between Finra and its members in The New York Times today. Barbara Roper, director of investor protection at the Consumer Federation of America, told me that Finra’s proposal to get monthly data about activity in investors’ accounts could go a long way in preventing fraud because it would let Finra jump on problems more quickly:
“It creates a real deterrent,” she said. “Who’s going to churn an account if it immediately sends off a warning siren at Finra?”
You can read the story here.
The list of investors who got fleeced by convicted felon Jordan Belfort, aka “The Wolf of Wall Street,” would be gold in the hands of financial crooks, and that’s why a federal judge in Brooklyn told the producers of “Inside Edition” in June that he wouldn’t hand it over to them.
“It’s pretty well known in the fraud world that the best list to get is the list of people who have already been taken,” Doug Shadel, an expert on fraud schemes and the elderly at AARP, told me in an interview.
In my story for The New York Times DealBook last month, I looked at the ways that financial criminals find and fleece their victims. You can read the story here.
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.
“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.
You may recall the bizarre story of the Long Island stockbroker who hoodwinked the producers of the Broadway show “Rebecca” into thinking he’d lined up millions of dollars for the show. The producers put up $60,000 and the broker, Mark C. Hotton, put the money in his pocket.
It was a strange tale in many ways, not the least of which was that Hotton had been fleecing investors of millions of dollars for years before he wound up in headlines for picking up a paltry $60,000 from the show biz chumps.
I nearly choked when I read that Manhattan U.S. Attorney Preet Bharara had said in a press release that the FBI had uncovered Hotton’s misdeeds “with lightning speed” in 2012. Hotton had been fleecing people ever since he forged documents and bounced a $31,550 check to buy some used cars in 1990. That’s some pretty slow lightning.
In my story for The New York Times last week, I wrote about the latest twist in Hotton’s story. His former employer, Oppenheimer & Co., had been ordered by arbitrators to pay out only $2.5 million of the $5 million that a married couple had lost at Hotton’s hands. Then, six months later, their lawyer discovered evidence that the firm had held back a smoking gun. Read about it here.
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.
The depiction of stock brokers in that “Wolf of Wall Street” movie has the securities industry on the defensive. In my column today for Investopedia.com, I talk about how a faction that considers itself the “real” Wall Street is anxious to get the word out that it has no similarity to the thugs who appear in the movie with Leonardo DiCaprio.
Ask a pal at a Wall Street firm about the box-office hit The Wolf of Wall Street, and brace for one of those sour faces that suggests there’s a bad smell in the room. Those sex-obsessed, drug-taking thugs who ripped off investors in Martin Scorsese’s all-time, biggest-grossing film have nothing in common with the refined investment professionals who do business on real Wall Street, they will tell you.
But that’s not entirely true. The Wall Streeters who wear expensive suits and do business in Manhattan may not be tossing midgets around the trading room, as the perhaps less genteel Long Island brokers in the movie did. They aren’t above hurting investors, though.
“If people understood the similarities between Belfort and Wall Street, there would be a riot in this country,” says Dennis Kelleher, CEO of the investor advocacy group Better Markets Inc. Kelleher explains, for example, that Belfort’s operation dealt in barely-regulated penny stocks that came with either skimpy information or documents that twisted or obfuscated the facts. On conventional Wall Street, says Kelleher, firms bask in the convenience of the opaque, too, trading the kinds of over-the-counter derivatives that helped crash the economy in 2008.
Here’s a link to the story.
As many times as I’ve run across stories about financial ripoffs of the elderly, I still can’t help but be shocked at the cruelty it takes to fleece people who are so fragile. In my article yesterday for TheStreet.com, I wrote about how much worse the problem has become, and how it will only get worse from here.
While elder financial abuse is in some respects nothing new in the annals of fraud, the aging of the baby boom generation and Americans’ increasing longevity are coming together in a perfect storm that could cause the problem to skyrocket. A 2010 survey by the Metropolitan Life Foundation estimated that victims of elder financial abuse lost at least $2.9 billion in 2010, up 12% from 2008.
I begin with a story about 73-year-old Charles S. Bacino, who lay dying in a hospital bed in 2012 when the man he called his “financial affairs manager” came by to visit and persuaded him to invest $82,000 in a cocoa and banana plantation in Ecuador. Mr. Bacino, who was hooked up to a morphine drip to soothe the pain of his pancreatic cancer, gave his keys to the man so that he could fetch his checkbook. Less than a month later, Mr. Bacino was dead and the whereabouts of his money was a mystery.
You can read the full article here.
Today, the Society of American Business Editors and Writers said that I won the “Best in Business” award for commentary in the news agency category for columns I wrote in 2013 for Bloomberg View.
Here’s a list of all the winners, including writers worth following on a regular basis, such as Jesse Eisinger of ProPublica and Michael Smallberg of The Project on Government Oversight (POGO).
If you’re looking for smart and talented financial journalists worth adding to your regular reading list, take a few minutes to go through the roster of Sabew winners.
Notes from the judges on my submission:
NEWS AGENCIES COMMENTARY
Winner: Susan Antilla, Bloomberg View, for her columns.
Terrific topics. Tough, engaging, enlightening, head-snapping. Well-reasoned arguments. Writes with authority and insight in a simple, declarative style that doesn’t wander. No navel-gazing. Sophisticated humor used lightly in a way that advances the argument. Not humor for humor’s sake.
Here are links to the stories the judges considered:
Do Deutsche Bank’s ‘Prettier’ Women Get the Best?
JP Morgan’s Teflon CEO Glides Past Reputation Hits
Hate Follows When the Police Try to Do Their Job
Top Stock Picks of 2013 Lose Out to Honey Boo-Boo
Jordan Belfort, who did jail time for fleecing investors at Stratton Oakmont, the Long Island brokerage firm he founded, has put himself out there as a reformed man. Indeed, he has been making money legitimately, giving speeches to audiences enthralled with the idea of spending an hour or so in the same room as a convicted felon who claims to have seen the light.
Belfort is, of course, the author of the 2007 book “The Wolf of Wall Street,” which was made into a movie starring Leonardo DiCaprio (playing Belfort) that was released last month. He’s taken to social media to inform the public that he’s a good guy who is giving all the movie proceeds back to the investors he defrauded. But the prosecutors who put him in jail say he’s not telling the story just right. I write about it in my story today in The New York Times.
Brokerage firms spend big bucks on TV and print ads that depict their stockbrokers as informed, sophisticated professionals who are looking out for clients. So it might come as a surprise to know that when investment products blow up, brokers have been known to complain that they had no way of knowing that the product was bad.
In my story for The New York Times tonight, I show how brokers wiggle out of responsibility when they sell customers a product that turns out to be garbage. You can read the story here.
You’ve seen the trailers. A convicted stock fraudster played by Leonardo DiCaprio parties it up on his 170-foot yacht and entertains his office of crooked stock brokers with a half-naked marching band that celebrates the group’s latest money haul from their clueless clients.
Paramount’s “The Wolf of Wall Street” is a 3-hour movie that opens Christmas Day. I saw a screening in New York on Wednesday night. The mostly 30-something crowd loved watching the hard-partying life that comes when you perfect a method to steal from the public.
My prediction: Young people will be wowed by DiCaprio’s character, Jordan Belfort, just as they were by Michael Douglas aka Gordon Gekko (remember “Greed is Good?”) in the movie “Wall Street.” Douglas said in this story that he was “shocked” that young people decided to work on Wall Street after watching him play a Wall Street bad guy.
Ask your college-aged kids what they think when they see the movie, and let me know.
It was sort of bothering me that amid all this hard partying and cocaine-snorting that nobody had bothered to mention that people actually got hurt by the funny brokers who throw midgets at a bullseye for fun. Thus, my story in today’s New York Times: “Investors’ Story Left Out of Wall Street ‘Wolf’ Movie. You can read it here.
Stock brokers who settle with an aggrieved customer are able to get the go-ahead to delete the customer’s complaint from their records almost every time they ask, according to a study released Oct. 16. I wrote about it in today’s New York Times.
To understand the history of these broker shenanigans, take a look at an earlier story that I wrote for The Times on June 10: A Rise in Requests From Brokers to Wipe the Slate Clean.
It’s a topic I’ve been watching for some time. Eleven years ago, brokers were on an earlier push to make their bad records look good, and I wrote about that for Bloomberg Markets Magazine — How Wall Street Protects Bad Brokers. So when Wall Street’s self-regulators at The Financial Industry Regulatory Authority (Finra) tell you this problem emerged in 2009, consider this article from 2002:
If you’re an investor who’s lost money at the hands of a broker who may have broken securities laws, you are pretty much stuck. In 1987, the Supreme Court said in Shearson v. McMahon that a brokerage firm had the right to force investors to forego court — and instead use industry-run arbitration — in the event of a grievance. Brokers did that by including a so-called “mandatory arbitration” clause in their customer agreements.
That means no public filings, no judge, no jury and no members of the public permitted in your private courtroom. Once the McMahon ruling came down, virtually every brokerage firm raced to add a mandatory arbitration agreement.
The only way since then that the investing public could get before a judge and jury has been in egregious cases where multiple investors claim to have been ripped off in the same way — a class action. Those cases, up to now, have been allowed to proceed in public view.
In 2011, though, Charles Schwab & Co. added a provision to its customer agreements saying that its clients couldn’t partake in class actions, either. Finra, a regulatory organization funded by Wall Street, objected to that. I write about what it all means in my story tonight for The New York Times. You can read it here.
A Hartford jury said Wednesday that the Connecticut bank that was custodian for two investors in Bernard Madoff’s Ponzi scheme was not liable for their losses.
I wrote about the Alice-in-Wonderland-style trial in a story for The New York Times on July 8. The bank’s former president said he didn’t know what due diligence the bank might have done to be sure the customer’s assets existed, and didn’t know how the bank maintained accurate records. The president, who’d been in the banking business for 36 years, had a degree in finance from Georgetown University.
Another doozy in the trial was the bank’s former custodial manager, who said he would get three or four “very thick envelopes” of trade confirmations from Madoff some weeks. He put them in a file drawer and never reviewed the documents. (Except that he occasionally took a peek because he was curious about what Madoff might be buying or selling, but not curious enough to do any checking on behalf of the bank’s customers.)
The Hartford trial began in June as a consolidation of three lawsuits with similar allegations. But two of those cases settled for $7.5 million just before the jury began its deliberations, leaving the jury with only the case of two elderly Florida investors to decide. You can read my story about the verdict today for The Times here. Take a lesson from this: When a financial outfit tells you it is your custodian, don’t make the mistake of assuming that means they have custody of your money.
Custodial banks typically earn their fees based on a percentage of the value of the assets they’re holding for you. But do they have any obligation to confirm whether there are any assets there in the first place?
A Hartford jury is deliberating over that and other questions in a case brought by former customers of Bernard Madoff. Westport National Bank was custodian of the investors’ accounts. But, as it turns out, when the bank took over the accounts in 1999, no assets existed, and the bank didn’t bother to check.
The custodial issue is becoming ever-more important as investors increasingly put “alternative” investments such as hedge funds in their retirement accounts. Pricing those investments can be dicey, and you shouldn’t expect that your custodian is doing any analysis to ensure that the prices they show on your statements are realistic.
I attended several days of the trial against Westport National Bank in Federal court in Hartford in June. Here’s a story I wrote about it for The New York Times.