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.

Why Jordan Belfort’s ‘Sucker List’ Won’t Be Released to ‘Inside Edition’

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.

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.

New Evidence May Reopen Broker Fraud Case

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.

 

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.

Not even the EEOC was allowed at this sex discrimination hearing

On Feb. 26, eight women who had sued Sterling Jewelers, Inc. were ushered into a private hearing room in midtown Manhattan with their lawyers, lawyers for Sterling, and an arbitrator. The door was shut behind them.

Like an increasing number of disputes between employees and employers, this one would be heard in a forum where the public and the press were forbidden.

I asked to attend the late February hearings on this sex discrimination case that could wind up including 44,000 women in 50 states, but the arbitrator declined my request. More important is that the Equal Employment Opportunity Commission – the agency in charge of enforcing federal civil rights laws – also asked, and also was declined. 

Joseph Sellers, a lawyer for the plaintiffs, said that the agency was told it could ask for a transcript, although no guarantee was made that it would receive one.

Sterling, based in Akron, Ohio, is parent of 12 jewelry chains in the U.S., including Jared the Galleria of Jewelry and Kay Jewelers.

The two sides presented their arguments for and against a motion to certify a class of women who’d worked in sales positions at Sterling since 2003. The women at the hearing, who would act as representatives of the class, say that Sterling discriminated against them in its pay and promotion policies.

The case, which I wrote about Saturday in The New York Times, includes examples of some of the worst sexual harassment allegations I’ve ever heard, and that includes the vulgar behavior I wrote about in my book “Tales From the Boom-Boom Room: The Landmark Legal Battles That Exposed Wall Street’s Shocking Culture of Sexual Harassment.”

Sterling says the allegations are “without merit.” Continue reading

Wall Street Says It’s Classier Than “Wolf of Wall Street.” Really?

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.

One in Five Senior Citizens Fall for Financial Scams

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.

Sabew Commentary Award

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 doesnt wander. No navel-gazing. Sophisticated humor used lightly in a way that advances the argument. Not humor for humors 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

Do You Really Want to Learn Investing From These Guys?

“Customers first,” I always say, and who knew that the securities industry would actually come around to saying the same? The lobbying group for Wall Street, the Securities Industry and Financial Markets Association, unveiled some new battle cries for 2014 at a meeting in New York in November, “Customers First” and “Helping Main Street Prosper” among them.

I wrote about Sifma’s upcoming efforts to plant seeds of goodwill with the public in my new column for Investopedia.com this week:

The financial industry’s trade group is on a mission, and the public relations tour de force begins this month with the launch of a capital markets literacy effort that SIFMA calls “Invest it Forward.”

Sifma actually has a financial literacy winner in its popular “Stock Market Game” that gives school kids $100,000 in virtual money to trade. Kids who play the game improve their  literacy scores, but the champions can be a tad precocious:

A fifth grader from East Brunswick, N.J., took to the stage at the Marriott to receive her SIFMA award for investment prowess, and said the teamwork approach to investing sometimes cramped her style. “I hated when my team was arguing because we were just wasting time, and time wasted is virtual money lost,” she said. Could somebody spring for a copy of Graham and Dodd’s “Security Analysis” for this child?

You might check to see if your wallet is still in your pocket when you’re listening to Sifma’s pro-investor pitch. You can read the column here.

About that Reformed ‘Wolf’ of Wall Street

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.

 

 

Investors’ Story Left Out of Wall Street ‘Wolf’ Movie

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.

McKinsey Clients Shrugged at Scandals, Ignored Greed

McKinsey & Co. is the global fix-it firm of choice, whether you’re a company looking for an outsider to justify laying off thousands of employees or a government looking to get its managerial act together. A new book by Duff McDonald, a contributing editor at Fortune and The New York Observer, provides a good history of the firm but can’t seem to decide whether McKinsey is a valuable advisor or a waste of money.

I reviewed “The Firm: The Story of McKinsey and Its Secret Influence on American Business,” for Bloomberg Muse today. You can read it here.

Jury Largely Sides With Bank in Madoff-Related Case

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.

Custodians don’t always take custody: investors beware

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.