As you’re curled up on the couch watching ABC’s Bernie Madoff series, it’s understandable if you start getting a little edgy. What about the guy or gal running your money?
I took the occasion of ABC’s widely watched series to remind investors that there actually are things they can do to check a broker’s record. You can read my column for TheStreet 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.
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.