A film by Francis Bush Obama

STARRING!

The SEC as “Luca Brasi”  * Kenneth Lewis as “Carlo Rizzi” * Hank Paulson as “Sonny Corleone” *

Timothy Geitner as “Michael Corleone”   * Barney Frank as “Tom Hagen”

And introducing in his first starring role!

Ben Bernanke as “Don Corleone”

The most awaited financial movie in History is finally here! Join us as we chronicle the struggle of a group of young banksters as they work their way up the financial tree and eventually become the most powerful gang of banksters in the world. But the rise to the top is not easy and staying there is even harder… (more…)

Wasting Away Again In Regulatorville…

Another day, another new Regulator or Czar appointed by the government.  The latest creation is the new and improved super regulator that will over see the SEC and FINRA as well as the institutions themselves.  Before we get into this latest and greatest Regulatory overhaul, I think is important to take a trip down memory lane. Let’s start with November 2006 when the folks at the NYSE and NASD Regulatory arms decided to merge into one Single super regulator known as FINRA… (more…)

True economic recovery or a dead cat bounce hangs in the balance

With each passing day we read and hear about the vital signs of the economy like it was a patient at a hospital on life support. Every little sign of improvement seems to be accompanied by pundit’s proclamations that the worst is behind us. Even bearish commentators like me have admitted to seeing signs of life that the economy is improving and that capital formation appears to be gaining some legs. Are we to believe that this 2000 point rally in the market as well as surging oil prices is a sign the recession is over? Well, take a deep breath and brace yourself for what I’m about to say… (more…)

How to tell when the real Bottom has occurred

Lehman Brothers, Bear Stearns, AIG, Washington Mutual and Wachovia Failing, TARP programs, 4500 point Dow Drop, Housing Crash, Credit Crunch, Layoffs, Foreclosures, more Layoffs, Credit Crunch, More TARP money, Bankrupt Automakers, Government Takeovers, Pick a Ponzi, Bernie Madoff, Sanford, Harbor private funds, Wall Street Bonuses, 3 trillion in government spending, Wall Street Greed and Bonuses with TARP money, More TARP money, Hyperinflation on the horizon, more layoffs and finally…..The Mexican Swine Flu. (more…)

No, this is not an article about Bank America and Merrill Lynch and how the Regulators attempted to silence full and fair disclosure in offering materials to shareholders….why would I write about that anyway? At this point the level or lies, deception and fraud is so rampant on Wall Street and in Washington that it goes beyond beating a dead horse cliché.

The corruption at so many levels of our industry is a great time to announce our new affiliation with Financial Advisors Assurance Select (www.FAlegal.com) one of the leading providers of Errors and Omissions insurance. Why? Quite frankly because the SIPA is the leading voice of the Registered Rep and you need to be protected by outside sources. The largest firms on Wall Street are involved in a corrupt struggle with life and death due to toxic investments. Please do not think for a second that your head (and your commissions) won’t be served on a silver platter to the next lawsuit they face. Do not assume that your firm is going to protect you and your interests above theirs and more importantly, do NOT assume that just because your firm is deducting a monthly E&O payment from your commissions that the money is getting paid and the policy is up to date. FA Legal provides E &O insurance not just to Brokerage firms but to individual brokers as well. There are a host of reasons why you may want to consider E & O coverage from a non related entity, the least of which is to make sure that YOUR interests come first. We have heard from many brokers who have retold nightmare stories about how their firm basically turned over, cut a check out of the broker’s accrued commissions up to the deductible amount and left the broker in the whole 25K and with an ugly mark on his license. We have also heard that some firms are using, “ahem” errors to get out of sticky situations for the firm with nor regard for the broker. I am not a lawyer and I’m not giving legal advice here, but with that said, you would be absolutely nuts to not explore some options to cover you’re A#S!!!!

Click on the link and find out a little more for yourself and always remember who is looking out for your best interests?

Today the Treasury Secretary began outlining his vision of a new Regulatory structure to replace the old one. This new system will save us all from another catastrophic meltdown in our financial system and make sure corruption and greed is caught early on. The SIPA response? Yadee Yadee Yadee…

With all due respect, why create a new broke system when we can enjoy the fruits of our old broke system? All the rules in the world are wonderful and make politicians and regulators alike feel like they re protecting investors but at the end of the day  if NOBODY enforces them what’s the difference?

Lets take a step back to our past to see why a ‘New” regulatory system is a waste of time unless there is fundamental changes in the mind set. Years ago I worked in operations for a wire house and would remember Brokers and correspondents running to the back office at 2:05 pm begging to get their mutual fund purchase/sale in. At this firm we required all Mutual fund tickets be in OPERATIONS HANDS by 2:00 pm eastern. Some where around 2003 the after hours mutual fund scandal broke due to the efforts of Elliot Spitzer (not a securities regulator). Billions and Billions were made by firms running tickets at 6, 7, sometimes 10:00 pm. The market closes at 4:00 pm yet for some reason, not one Securities regulator had a problem with a Mutual fund ticket time stamped at 8:00 pm? Since when is 4:00 not 4:00? This illegal and fraudulent behavior occurred for 10+ years yet we had to rely on Spitzer to out it.

Let’s look at the research scandals that also plagued Wall Street. I remember working Compliance and handing out the restricted list of securities the firm was involved with. We would prohibit any buy or sale until the updated recommendation was published. Yet for many years some of the larger firms on the street were putting out fraudulent reports about liking certain stocks while at the same time unloading their positions. They did this for many years yet once again it was the Attorney General who found the crimes. Think about some of the other scams and scandals that plague Wall Street and then ask your self if a new regulatory system would solve the apathy regulators tend to carry toward the elite Wall Street firms.

Now think about this: Lehman brothers , Bear Stearns and several other elite firms were so over weighted down with CDO’s and other toxic assets, yet no securities regulator ever questioned their risk management, their FOCUS reports or anything else. Once again, I draw upon my own previous experience when my examiner let me know during an audit that the firm currently had 12% of its total holdings in ABC stock. They informed me of the potential risk and we began restricting the stock and lowered our exposure. However, for some reason this same regulator sent employees into Lehman, Bear, Goldman and Merrill and saw absolutely no risk with holding billions in toxic assets or did they see the risk and just refused to say something?

Naked shorting of stock then cannot be readily borrowed has always been illegal, yet it wasn’t until last summer when the largest firms on Wall Street were being crushed by shorters that the SEC finally jumped in to enforce Short sale rules. Our Government is not without fault either in this mindset. For instance, the SEC took over Sanford Financial as well as several other small firms and hedge funds in the past year. A receiver was immediately appointed to oversee the day to day operations. Our government announces that AIG is broke and puts hundreds of Billions into the company but didn’t send a receiver be appointed? So now the Government wants to talk tough and take a 90% tax out of greedy bonuses that were given with the Fed Chairman’s consent?

At the end of the day it’s obvious that selective regulation does not work. Yet we have seen no indication of that mind set changing anytime soon. In fact, we fear the scandals can get worse then ever before for one simple reason: The large Elite firms now have ‘can’t fail status” due to tax payer money totaling 2 trillion and counting. Do you really think the Wall Street elite is now concerned that if they screw over investors with bad prints, bad research and inside information that it will have any effect on them? Chew on this for a moment: how are you going to levy a huge fine for future fraudulent behavior of you already have trillions invested in them? Imagine a fine of 100 Million for bad acts against Merrill for some atrocity all the while knowing they have a line of credit with the government and if they did pay, it would delay repayment of the TARP money. A new Regulatory overhaul will change what? Nothing.

CYA In These Crazy Times

As one of the leading voices of Registered Reps and their rights to Life, Liberty and the pursuit of higher returns, The SIPA has had an out pouring of e-mails and phone calls from Individual registered Representatives who are now being made the brunt of this cruel Bail-out Blarney.  As everyone knows by now, Bernie Madoff wasn’t the only one in town who figured the regulators weren’t looking.  Recently the SEC revealed that another Ponzi scheme in Texas was being perpetrated by none other than Alan Stanford.  The scary thing about this is not that he stole money for years without any regulatory intervention, but rather the fact the honest hard working Brokers tried to stop this and were turned away.  Click the image below to see the interview in its entirety.

Here is an honest and hard working Broker who is concerned for his clients, concerned for his firm and when he goes to his Compliance Officer he is shown the door and more shocking is that when he went to his regulator he was ignored.  Every broker should be taking steps right now to document each and every conversation and concern you have with your Supervisors and your Compliance officers.   Do not for a second assume that just because your compliance officer signed off on something that your job is done.  Right now it’s every man for himself and it appears that brokers may be the easiest thing to throw under the bus.  For instance, we recently heard from a top five Wall Street firm Broker that he had his Form U-4 marked for the first time in 20 years due to a complaint that he “bought FNMA preferred stock for his client three years ago”! It was recommended by this will known company and was triple A rated yet due to the collapse on Wall Street, he is now being treated like he is a boiler room caller in Long Island selling time shares for land in Wyoming!.

When your company touts a company…You need to seriously check out their motives.  Many brokers for large firms have this crazy notion that as long as my company is pushing a particular investment it must be in the best interest of the client.  WRONG!!!!  Just remember that if you are brought up on charges of unsuitable investments you can count on two things:

1. You Company will NOT have your back and
2. The Trial attorney would love it if they did

Why is this?  When these over zealous trial lawyers get going they are like sharks smelling a wounded whale.  They know that the more blood that is in the water the greater the bounty.  Your company will not have your back because they do not want a class action suit against them or commercials about their firm and investments running early in the morning.  As for the lawyers, they would love nothing more then to get their claws into one of these companies that does get your back and admits that they encouraged all reps to buy a particular stock.  Don’t believe me?  Without giving too much free publicity, check out the name of this web site:  www.SueMorganStanley.com

If you do get a customer complaint, we would urge you to do two things, let your compliance officer know and then contact your own outside counsel.  In-house counsel is paid to protect the firm first and foremost and anything that can open the firm up to exposure will be avoided.  This means that even if they know you did nothing wrong they may sit there mum and do nothing because you are just a pawn in their greater scheme.  We would urge all Reps to especially review and begin asking harsh and blunt question of their management in they helped raise capital for any hedge funds…especially if they were proprietary hedge funds.  You should demand total transparency of these funds and the fees and if they are unwilling to provide it….seek legal counsel immediately.  The SIPA is not a law firm nor are we offering legal advice…but if you drop us an e-mail we do know some quality lawyers with integrity and chutzpah 

Sweeping The Scene Clean of Madoff’s Victim’s Blood

Bernie Madoff plead guilty to 11 counts of fraud yesterday in Manhattan. While acknowledging that we are not Crime Scene investigators in New York, Vegas or Miami, the SIPA is shocked at the apparent cover up in the whole Madoff mess.  Although I’m no genius, I do consider myself a pretty good judge of common sense and human nature.   Why in the world would Madoff just plead guilty to all counts and go directly to jail without passing go or collecting his $200 bucks?  This is America damnit and nobody in this country is ever guilty…and even if they are, they say it was someone else’s fault.  OJ Simpson butchered two people and had bloody clothes all over his house….but he wasn’t guilty.  Robert Blake of Berretta fame excuses himself from dinner goes out back and kills his ex wife and then goes back to dinner about an hour later…But he was innocent too.  Now along comes Bernie Madoff and his now 64 Billion Ponzi scheme and all he can say is “ I’m guilty of everything”?   Please spare me talk about him owning up to his evil ways or remorse.  The guy is a total unadulterated scum and a con man. He would have kept his scheme going as long as possible…

But – Had Madoff plead innocent to all charges, he would likely have spent the next several years confined to his 7 million penthouse in the city.  He is 71 years old and any trial would have taken years due to the size and depth of this scam.  It is very conceivable that Madoff might have died of natural causes before ever spending a single nite in jail. So his guilty on all accounts has me concerned that the fix is in. It fails the common sense test.  Why would no defense be presented?  For instance, in the OJ case a police officer who once uttered the “N” word 12 years earlier became a two week sensation and a side show to divert attention away from the fact that OJ killed two people.  Despite the atrocities Madoff committed, there wasn’t a single smoking gun the lawyer could hang his hat on? 

And what about the Prosecutor? How could he have just let Madoff go quietly into the night when this is the sort of case a prosecutor dreams about for an entire career? A scumbag of mammoth proportions caught dead-to-rights. Under normal circumstances, the Prosecution of a cretin like Madoff would have been used to send a message. Particularly in light of the massive damage that Madoff inflicted – to confidence in our financial system – not to mention the actual ruined victims. 

There Were No Trades Done By The Madoff Fund. So… WHERE IS THE MONEY?

I believe the guilty plea should no be accepted because there are still so many questions out there to be answered. We know Madoff is scum,  but if we don’t know HOW we cannot prevent this from happening again.   A long drawn out trial would be in the publics best interest because it would allow investigators to see where tey failed and how to prevent it from happening again.  For example, as of today they are pegging the losses at 64 BILLION dollars!!!!!…Im going to repeat this again for effect..64 BILLION DOLLARS IN LOSSES.

Now im going to throw some sobering, shocking and quite frankly scary numbers at you.  They are scary because quite frankly they don’t add up and it may make you question our government.  The Madoff scam goes back approximately ten years and investigators now say they cannot find any trades run by his fund.

For the sake of keeping it simple, let’s assume that just about every day for the last ten years Madoff spent the money.  360 days a year for ten years Madoff spent the money.  If you divide the 3600 days into the 64 billion loss, that means Bernie spent 17 MILLION DOLLARS A DAY…do the math …its impossible to spend that much.  Had he been playing the horses, buying risky derivatives or some other venture….it still could not add up to 17 million per day.  They keep saying he had a lavish lifestyle, but come on, 17 million per day?  The plea should be rejected until we figure what we are charging him with. 

Instead the government and the regulators are almost like a cop at a grotesque murder scene telling pedestrians “Nothing to see here folks, keep moving”.  Blood and body parts are everywhere but the cop keeps the crowd control face on and just pretends everything is going to be ok…Just like the Madoff plea yesterday.. “Nothing to see here folks, He spent 17 million dollars a day every day for 10 straight years…keep moving folks”

How To Insult The American Public With A Smile On Your Face

Today the SEC Chairman Christopher proclaimed that “ The SEC Failed to Investigate and Probe Madoff”.  (Click here to read story).

While this might sound to some of you as a small act of contrition and public acknowledgement of his agency’s failings, this is really nothing more then a slap in the face of every American Investor and every decent Financial Advisor and Broker Dealer who has strived to be honorable and ethical in everything they do.

Let’s be brutally honest here: This is a systemic failing from the top of regulation to the bottom.  Madoff wasn’t a one time ponzi scheme that was started in a long island boiler room six months ago where the feds finally found out.  This was a ten year scheme in which both the SEC and the FINRA refused to investigate. 

Why?  Perhaps we should look at the Bear Stearns situation in which the Inspector General said the SEC was lax yet refused to bring charges against Bear Stearns and then even went so far as to drop all charges against them!!…Hindsight is 20-20 as they say…or maybe it isn’t? 

In 2005 Gary Aguirre of the SEC began investigating Morgan Stanly and its relationship with one Pequot Capital,. a Hedge Fund that had over 7 billion in assets and was run by the close friend of Morgan CEO John Mack. In 2005 Aguirre testified before the Senate Judiciary Committee regarding “Hedge Funds and Analysts: How independent is their relationship” But then Aguirre did the unthinkable:

He wanted to conduct an On The Record (OTR) with the CEO of Morgan Stanley, John Mack.  He was told NO WAY by every supervisor all the way up the chain, including one CHRISTOPHER COX .  A short time later Aguirre was fired. Later, he filed a wrongful termination suit and was vindicated in August 2007 by the inspector general.  Today this same person is claiming that his agency “failed” to investigate Madoff”?? 

“If A Bug Remains Un-Fixed For Long
Enough, It Becomes A Feature”

-Old Hacker/Programmer Addage

Would it have mattered if they did?  Based on past performance, the investigation would have stalled right around the time Examiners started asking for OTR’s with Bernard Madoff himself.  In fact, recent discoveries have found that Madoff kept two separate books for his Fund and may have given fake and or doctored books to the Examiners – but nobody ever required him to justify or prove his numbers.

The SEC is also responsible for allowing the merger of two regulators into a single regulator now known as FINRA.  In fact, the SEC was so brazen about wanting only one regulator that NASD spokespeople regularly commented that “the Chairman of the SEC has said that if we do not merge with NYSE regulation then he will step in and do something”.  For some reason the SEC wanted “streamlined” regulation that would take away two sets of Self Regulatory eyes and replace them with one. We see how well that has worked out now don’t we?

So here we are now several years down the road and Wall Street is a giant mess of unethical and criminal activity and we are supposed to feel good about Chairman Cox saying his agency failed?  This is like George Bush coming forward now and saying “Maybe I should have relied on different information regarding weapons of mass destruction”. 

So what? It’s too little, too late and quite frankly its insulting to those of us in the know who have been following this All boys Club on Wall Street for the last 20 years.  The time is now for a new Regulatory system and a new way of thinking.  Join us in demanding an overhaul of the SEC and a reorganization of Self Regulation.  Please join our think tank of Brokers, Financial Advisors, B/D owners and Financial Professionals who are seeking meaningful change ..not more of the same “look the other way when its Wall Street Elite” mentality.

Why Madoff will not be an isolated case

Over a year ago we questioned whether there was sufficient regulation of the Hedge Fund industry (click here to read).  In light of the Madoff Meltdown the important question brokers must be asking themselves now is not IF more regulation is necessary, but should one remove one’s clients’ money as soon as possible from the many managed accounts around the world.  I would say unequivocally the answer is yes to the latter. 

Madoff is not a single rotten apple in the bunch and the lone exception to the rule.  Rather, Madoff is a reflection of lack regulation and quite frankly negligence on the part of many of the various agencies who were entrusted to protect investors.  In August of 2007 Goldman and Bear each reported losses in proprietary hedge funds to the tune of $10 billion combined.  At the time we questioned why nobody was looking at these companies and more importantly, we were concerned that if the “best and brightest” minds on Wall Street are losing billions, what about all the main street American hedge funds”? 

The simple truth is that these hedge fund managers are desperate right now to retain investors and stop liquidations and redemptions of their funds.  One prominent Hedge fund manager told me last week “I had nearly a billion dollar fund last summer, and now I’m down to 375 million in assets - due to redemptions.”

These numbers are staggering to say the least and as a Financial Advisor you better be on your guard for Enron type of accounting in the next few months. Think about this for a second: The regulators allowed a “ponzi scheme” to operate for over 10 years at Madoff until Madoff  turned himself in and had his children call the authorities.

I’m going to say this again for effect; but hear what I’m saying:

Madoff turned himself in and had his children call the authorities.

In other words, this whole charade could have continued without anyone knowing for several more years.  More chilling is the obvious fact that in all likelihood, many hedge funds are not even being reviewed for the most basic of things like year end reporting, accounting and performance.  This is not to say that all hedge funds are frauds like Madoff, however we truly believe that the environment was right for abuses due to the lack of any basic oversight.  Unless your hedge fund can provide total transparency (which they very rarely do) we would caution brokers about the safety of their funds. 

Sadly, when the proverbial crap hits the fan, these hedge funds will close. Then the trial lawyers and the regulators will turn on the individual advisors and question why THEY didn’t due more due dillie on the fund or its managers. 

We would urge all Financial Advisors to immediately DEMAND complete transparency from any money manger or hedge fund in which they have recommended.  If they refuse to back up their performance numbers, show their holdings and provide complete accounting, its time to consider getting out of dodge quick.  Madoff will not be an isolated case. Remember, MADOFF TURNED HIMSELF IN AFTER 10 YEARS OF UNDETECTED FRAUD!  Quite simply, there has been no accountability nor regulation for so long that its hard to believe that other hedge funds didn’t cook the books and take shortcuts as well.