Gender discrimination on Wall Street is an issue even when it comes to punishing employees for misconduct.
Three finance professors said in a new research paper that although the average male financial advisor engages in three times more misconduct than female advisors, females are punished more severely and are less likely to find employment if they lose their jobs. You can read my story about it on CNBC.com 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.
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.
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.
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.
Best-selling author Michael Lewis (Liar’s Poker, The Big Short) has often irritated Wall Street with his readable inside takes on the goings-on of financial one-percenters. And with his latest best-seller, Flash Boys, he’s even getting under the skin of other financial writers, which I suppose makes sense since there isn’t a one of us who can come close to Lewis’s genius.
Flash Boys is Lewis’s book on high-frequency trading, a topic that, up until now, was impenetrable to the average reader. And that’s what’s so threatening to Wall Street: Grandma could read Flash Boys and get a handle on the downsides of the computer-driven trading that’s dominating the markets.
The book is mostly a look at HFT through the eyes of a Canadian trader who got tired of getting bad trade executions and pushed back against what he considered market manipulation.
But Lewis also writes about the bizarre case of a former Goldman Sachs computer programmer who got thrown into jail for taking HFT code with him when he left Goldman. That’s right — a computer nerd you’ve never heard of wound up in the slammer for taking high-frequency computer code from Wall Street, while Wall Street big shots who oversaw mortgage fraud and other disgraces that helped bring down the economy walk the streets. You can read my CNN.com column about Goldman and its former computer programmer here.
I reviewed Flash Boys in today’s San Francisco Chronicle. You can read my review here.
When a Federal agency reins in sleazy debt collectors and slipshod mortgage servicers, that’s more than enough to get politicians enraged — at the agency, not the bad guys.
The two-year-old Consumer Financial Protection Bureau has already collected $3 billion to return to aggrieved consumers, and has done such good follow-up when consumers call to complain that lenders and others who fall under its jurisdiction are actually helping customers right away rather than face the ire of the CFPB.
In my story for TheStreet.com today, I talk about the bizarre reaction to CFPB from Republicans in the House of Representatives.
A gaggle of chest-beating Republicans has been in attack mode against the CFPB since before it even opened its doors, trashing the agency’s architect, Massachusetts senator Elizabeth Warren, and passing bills to try to weaken its authority. The latest effort, up for a vote in the House of Representatives in coming weeks: the Consumer Financial Protection and Soundness Improvement Act of 2013, which would reduce the agency’s pay schedule and make it easier to overturn its rules, among other curtailments.
Jeb Hensarling, chairman of the House Financial Services Committee, actually makes a good point when he criticizes CFPB for collecting extensive consumer data that is a worry in these times of compromised personal information, but he’s so over-the-top in his condemnations that his constructive criticisms could get lost.
A favorite practice of Hensarling’s is to introduce CFPB Director Richard Cordray at official hearings with taunts about the agency being “accountable to no one,” which is always kind of funny since the CFPB chief is sitting across from his cantankerous questioners precisely because he is being held accountable. Hensarling managed to squeeze references to Cordray as “credit czar” and “national nanny” and “benevolent financial product dictator” in a single sentence at a hearing in September.
You can read my story here.
“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.