Fiduciary Magazine » Fiduciary Info

Rothstein, Giacchetto, and Starr LLC

Editor — Wed, 09 Jun 2010 22:43:35 +0000

When markets get hammered, you see a lot of ponzi schemes undone. That’s because when the market craps out, no one puts new money into the market and the schemer can’t maintain his lifestyle and meet client redemptions at the same time.

Scott Rothstein, who swindled $1 billion from his clients was sentenced to 50 years today. He committed his crimes while licensed as an attorney. That’s a new take on attorney – client privilege.

But Rothstein isn’t the only dirtbag to get press.

Kenneth I. Starr, a Manhattan business manager and investment adviser, was found hiding – creatively – in a closet and was arrested for conning some of Hollywood’s best known stars out of millions. According to the NYT, “he was arrested on May 27. He remains behind bars at the Metropolitan Correctional Center in downtown Manhattan, after prosecutors argued that he might flee if released on bail.”

Dana Giacchetto and his Casandra Group Investment firm advised Mike Ovitz, Rick Yorn, and Leonardo. Giacchetto was in jail for stealing some $20 million from his star clients.

No one is safe people. You have to do your homework, even if you get referred to someone. You need to get their DNA code.

Here are some helpful links:

FINRA Brokercheck for people who work at brokerage firms.

Investment Advisor Public Disclosure for firms that claim to be Investment Advisors or Independent Advisors. You can also check if their asset under management claims are correct with this site.

National Futures Association’s Background Affiliation Status Information Center (BASIC) is to check the compliance history of those who are in the commodity futures business.

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I’m Not A Contrarian, I’m A Confusitrarian

Harold L. Katz, CPA — Thu, 20 May 2010 23:07:25 +0000

As you read this you might conclude that I am a contrarian, but the fact is I am not, I am a confusitrarian. You will see how I came to coin this word. What better place to start then with the sage of sages, Warren Buffet. At a May 1, 2010 shareholders’ meeting Mr. Buffett told his shareholders that “U.S. is recovering. He also said he was worried about “significant inflation” in the United States and elsewhere and that the Greek debt crisis has the potential for “high drama.” He went on to say that a large share of Berkshire’s fortunes was tied to the euro through investments in European companies. You will note that Euro has not been doing too well recently.

Mr. Buffett went on to say that very low interest rates in the United States cannot continue indefinitely, a statement I totally agree with, which I’m sure will excite Mr. Buffett.

But I go on to ask what impact will increased interest rates have on the economy of the United States, and especially on the economy of Los Angeles and California? California is the alleged 10th largest economy in the world and I recall reading that Los Angeles County is the 18th largest economy in the world and certainly West Los Angeles makes up a great portion of that economic engine.

Mr. Buffett says if huge budget deficits and easy money causes problems, Congress rather than the Federal Reserve should get the blame. I go one step further, I don’t want either to get the blame, I want the problem eliminated. Our investments are all in jeopardy due to the financial programs being driven by the U.S. Government.

Every day I read financial news reports that report happy news and not so happy news, all of which leads to my confusion. Let me share some of these with you. Certainly May 6th was a day that left many investors scratching their head and many very angry, such as a certain commentator on TV who said his stop loss orders kicked in when the market dropped 1,000 points in a few minutes, he lost a small fortune and then the market kicked back up but he no longer owned those shares. He questioned the wisdom of investing in the stock market, but then where else can you go to hedge against inflation?

Sellers of Gold are having a field day but I recall that Gold value stayed flat for some 15 years (that is a guess from memory) in the $300 to $400 range. It may have been longer than 15 years, but the Gold is irrelevant other than the fact that everyone should have a portion of their accumulated wealth allocated to gold you can hold in your hands as insurance against a worldwide financial crisis and runaway inflation. I have always considered Gold to be an insurance policy and not an investment.

Looking at a May 6, 2010 WSJ Evening Wrap, I find the following news: U.S. Productivity Gains Slow at a more modest 3.6% rate as the recovery continued to take hold. Separately, the number of U.S. Workers filing new claims for jobless benefits fell slightly, but they didn’t give the number. When only 300,000+ new people file for jobless benefits that is considered progress and a good sign. To me that is a big number, annualized that is 3.6 million new workers looking for work. And what about those that have given up.

This leads us to a 9.9 % unemployment (do you sometimes think the numbers received a close shave to keep them from hitting 10 % ?). Then people in the know, say the number of unemployed is really closer to 17 % when you include those that have given up looking for a job and those that are underemployed. This leads me to one of my favorite expressions as uttered by others; we are going through a “JOBLESS RECOVERY.”

You must excuse my doubtful nature, but I don’t consider a “jobless recovery” a recovery at all. I consider it a disaster in the making as millions of American’s cannot find a job. This means they can’t make their rent or mortgage payments, they can’t make their car payments and they certainly can’t make their credit card minimum payment that shoots them into interest rates that remind me of the bandits that used to rob the stage coaches as they traveled from city to city in the west. What happens to the lenders on these people’s homes, their cars and their credit cards? Will we once again be asked to bail out the banks/investment banks/ insurance companies?

We recently made a job offer to an administrative assistant, they used to be called file clerks, who had been unemployed for about a year. He had worked for a CPA firm that he said had gone from 140 people to 40 people. On the subject I have talked to fellow CPAs that have all undergone significant layoffs of personnel. Fortunately that doesn’t apply to our firm who finds itself as busy as ever, though collections have slowed as clients deal with their own financial problems.

Coming back to the Evening Wrap, it states that Retailers hit speed bump as U.S. consumers pulled back in April. Target and Gap were among retailer posting sales declines. Yet this Sunday my wife and I visited Bloomingdale’s in Century City and the store appeared very busy and the women were all carrying Bloomingdale’s signature bag, the little brown bag, a great piece of creative marketing.

Let us now jump to an Editorial by Cliff Smith of the Beverly Hills Courier, if you don’t read him you should. While I’m recommending reading material, I must recommend one of the finest business newspapers in the United States, The Los Angeles Business Journal and its editor Charlie Crumpley. If you want to know what is going on in the business world in Los Angeles, the Business Journal is the only place to get that news and it has a great Editorial section in the back of the Newspaper.

On April 9th Mr. Smith offered a number of interesting tidbits of information. There are 36 million people living in California. The state’s adult workforce is approximately 18 million, which means 50% of the population are either students or senior citizens. Of the 18 million people more than 2 million are out of work. Of the 16 million who have jobs, about 1.9 million works for the government, including schools and colleges, that is one out of every eight workers. If you step back and look at these statistics, it paints an interesting picture regarding your investment portfolio.

Continuing with Mr. Smith’s musings, he reports that a Stanford University study reported $535 BILLION in unfunded public employee pension funds or five full years of 100% of state tax revenue. This does not include the LA County and City Retirement System. This must be considered in the allocation of your investment portfolio. These are not just numbers on paper; we are headed for the day when payouts will exceed the total cash available. Where do you think it will come from? What impact will that have on our general economy? What about your investment portfolio?

Mr. Smith goes on to say, and I have written similar words, Go look at Beverly Drive, Pico , Beverly Blvd., Rodeo Drive, North Robertson or South Robertson and see the empty store fronts. I would add Melrose and Montana Avenue. I know a number of retailers in Brentwood that are suffering from downturns in business unlike anything they have experienced in the last 30 years, so yes I wonder about all the talking heads talking about the fact that the U.S. has turned the corner and is on the road to recovery.

Going back to the WSJ Evening Wrap, they report the MGM Mirage Swings to Loss, amid write downs at the casino company’s City Center. Yet I’m told that Maestros in the City Center is booming as is their entire chain, including the Beverly Hills location which my wife and I love to go to, we love to listen to Gary Shearer make music and we dance between the tables. We also love the food. Lest you think all is doom and gloom there is plenty of good news. The WSJ reports that the sales of luxury goods are on the rebound as Hermes quarterly sales jumped 19% (note the reference to sales but not to profits?).

The Evening Wrap also informs us that NY plans to cut 11,000 of its 300,000 workers, including hundreds of firefighters and thousands of teachers. I wrote a piece for CityWatch.com an Internet Newspaper focused on the city of Los Angeles, and it was entitled “LA Fiscal Crisis could Kill You” and I was serious. If you should have a medical condition that requires you to call 911 you might find that your local fire station is out on a call and one of its engines are moth balled due to financial problems, so the call rolls to the next closest station, but they too are out on a call so it rolls to the next station where again an engine is moth balled due to financial problems so it rolls one more time and you get lucky and they respond. By the time they reach you, you may have suffered irreparable damage or you might be dead. So much for the local financial crisis’ that you haven’t given to much thought to. Did you keep that life insurance policy up to date or did you let it lapse due to tight financial restraints?

On May 7th it was announced that the U.S. economy added 290,000 jobs in April. No further details were given in the news release I received. A week later it was reported that U.S. retail sales rise 0.4 percent in April, lower than March surge but lifted by surprise gain in motor vehicle purchases.

The next day, May 15, the Bank of England Governor, Mervyn King announced that the United States is facing the same fiscal problems as Greece.
Going back a month, on April 13, David Weidners column in Market Watch stated “the good news is that the bailouts worked. The bad news is the bailouts worked.” I think he may be in my group, a confuisitrarian.

I still have a half a dozen documents I have gathered as resource material for this article but I have already written too much. I close with the fact that I consider myself a pessimistic optimist. I think America has untold numbers of brilliant business people and inventors and we will continue to lead the world in innovations. How we overcome the problems our governments face is truly beyond my comprehension.

For the benefit of my children and grandchildren I hope the optimistic side of me comes out the winner, but I am very concerned about the pessimistic side of me.

All of this has to be considered when you are accumulating wealth and investing it for the future.Similar Posts:

ETF Expert Dave Morton On Fiduciary Responsibility In The Investment Landscape

Editor — Thu, 13 May 2010 08:46:23 +0000

I had the great pleasure of seeing and hearing Dave Morton on a panel at the Milken Global Conference a few weeks ago called The Road Ahead For ETFs.

Morton is the Chief Research Officer and Co-Chief Investment Officer of Foxhall Capital Management, a firm with $800 MM in assets.

In this interview, Morton discusses how you can achieve a higher fiduciary standard by implementing ETFs in your investment process whether you’re an RIA or plan sponsor. We also talked about how granular one can be in diversifying their clients portfolios using ETFs.

One thing you don’t want to miss, is discussion on the reality of what the public sees liquidity-wise, versus what Foxhall can accomplish utilizing specific market players in the ETF space.Similar Posts:

How Public Sector Unions Broke California

Editor — Fri, 23 Apr 2010 08:13:24 +0000

How public employees became members of the elite class in a declining California offers a cautionary tale to the rest of the country, where the same process is happening in slower motion. The story starts half a century ago, when California public workers won bargaining rights and quickly learned how to elect their own bosses—that is, sympathetic politicians who would grant them outsize pay and benefits in exchange for their support.

Over time, the unions have turned the state’s politics completely in their favor. The result: unaffordable benefits for civil servants; fiscal chaos in Sacramento and in cities and towns across the state; and angry taxpayers finally confronting the unionized masters of California’s unsustainable government.

From The Beholden State, by Steven MalangaSimilar Posts:

Is The SEC Corrupt?

Editor — Thu, 22 Apr 2010 07:21:58 +0000

Plenty written and spoken about Goldman Sachs since the SEC has come forward with charges. Now, CNBC has learned that Paolo Pellegrini has insight that contradicts what the SEC has alleged.

Paolo Pellegrini told the government that he informed ACA Management that Paulson intended to bet against, or short, a portfolio of mortgages ACA was assembling.

CNBC has examined documents in which a government official asked Pellegrini whether he informed ACA CDO manager Laura Schwartz about Paulson’s position.

“Did you tell her that you were interested in taking a short position in Abacus?” a government official asked Pellegrini, referring to the name of the CDO portfolio.

“Yes, that was the purpose of the meeting,” Pellegrini responded.

Here is the full article at Yahoo! Finance.

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Are You A Fiduciary?

Editor — Fri, 09 Oct 2009 08:10:09 +0000

Fiduciary duty is determined by facts and circumstances and it is not uncommon for fiduciaries to be unaware of their status. One of the first issues that will arise in breach of fiduciary duty litigation is determination of whether the defendent, in fact, owed a fiduciary duty.Similar Posts:

Bearer Bonds?

Editor — Fri, 26 Jun 2009 21:26:34 +0000

The issuance of Bearer Bonds has been discouraged for almost 3 decades with the passage of the TEFRA in 1982.

“The interest on any such bonds issued after 1982 would be taxable to the issuer in the case of corporate bonds, and taxable to the holder in the case of municipal bonds.”

I guess that did not smack in the face of the Italian authorities when they intercepted 2 Japanese men who held $134.5 billion in fake US Government Bearer Bonds.

“Italian law does not call for the criminal arrest of persons found to be taking funds without permission to another country. It might have been another matter if the police had determined immediately that the bonds were false.”

Which raises the question: If you have a client who has bonds in bearer form, or is dealing with Bearer Bonds, how can you vouch for their authenticity?

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Red Flags on Madoff All Along

Editor — Mon, 22 Jun 2009 06:15:56 +0000

Madoff turned the table on the client: he had it set up so that he basically interviewed them for admittance. That made the potential client want it more. I can’t imagine how those people feel right now.

When your money manager is the:

broker/dealer
custodian
investment advisor

you have to have a lot of trust for that person or entity. To me, that type of trust would rank with God or a higher power.

I hold the SEC responsible because they were alerted and they were too afraid to ask for what they needed. Politics has no place in fiduciary care.

So far, nothing has changed since Madoff. There are proposals, but nothing has changed.Similar Posts:

Obama’s New Fiduciary Standard

Editor — Fri, 19 Jun 2009 09:38:24 +0000

By JANE J. KIM and AARON LUCCHETTI

Buried in President Obama’s proposed regulatory overhaul is a change that could upend Wall Street: Brokers would be held to a higher “fiduciary” standard that would compel them to place their client’s interests ahead of their own.

Currently, brokers are only required to offer investments that are “suitable,” which means they can’t put clients in inappropriate investments, such as a highly risky stock for an 80-year-old grandmother. The move could change the way products are sold and marketed and even how brokers are compensated.

The first step should be to do away with the Series 7 Registered Representative’s license. I don’t think they all need to sit for the CFA, but they need to be better able to manage risk. There is not a single question on the test about how to minimize losses nor how to maximize profits.

“This is a smart and overdue move” for the large brokerage firms owned by investment banks, says Sallie Krawcheck, who formerly ran the wealth-management business at Citigroup Inc. “It’s certainly a victory for clients.”

Many investors don’t even know the difference between the two standards, believing their brokers already are acting in their best interests.

But requiring brokers to operate under a fiduciary standard could force them to offer products that are less costly and more tax-efficient. They will have to disclose any potential conflicts of interest, such as any fees they may get for favoring one product over another. That could mean clients will be offered fewer proprietary products if the broker can find a lower-cost option elsewhere.

For example, a broker couldn’t put you in a mutual fund with higher fees — or one he gets a bigger commission for selling — if he could get a comparable fund with lower fees elsewhere, says Tamar Frankel, an expert on fiduciary law at Boston University School of Law.

The proposal addresses a long-simmering debate over how brokers and investment advisers, who have traditionally offered more financial-planning advice, are regulated.

For years, investment advisers — regulated by the Securities and Exchange Commission as part of the Investment Advisers Act of 1940 — have been held to a fiduciary standard, meaning that in serving the clients, they have to put their clients’ interests first. Brokers were excluded from that definition of investment advisers as long as they didn’t get paid special compensation for that advice, and gave it as “solely incidental” to their brokerage services.

But over the years, that distinction became more blurred as brokers held themselves out as financial planners, even as they continued to operate under the more lenient standards. Making matters more confusing is the fact that some brokers became dually registered, operating under a suitability standard when they are selling products, but under a fiduciary standard when doling out investment advice.

Richard Ketchum, chairman of the Financial Industry Regulatory Authority, says “a fiduciary standard should be established for broker-dealers when they are offering investment advice.” He said the SEC should lead a discussion of how to define those situations and adds that features of both broker and adviser regulation should be kept.
The Intelligent Investor

* The Fight Over Who Will Guard Your Nest Egg

The change also will give investors more power if they take their broker to court. “If a fiduciary violates his duty — that is, gives advice which is contaminated by self-interest — he could be sued not only for damages that have been caused for this advice but could also be sued for punitive damages,” says Boston University’s Ms. Frankel.

The tougher fiduciary standard would discourage brokers from charging trading commissions instead of fees based on a client’s assets, says Alois Pirker, a senior analyst at Aite Group LLC. That is because brokers could be accused of recommending trades simply to drive up their commissions. Some firms have already been encouraging brokers to register as investment advisers.

The Securities Industry and Financial Markets Association, a Wall Street lobbying group, has pushed for updating standards so brokers and financial advisers are held to the same rules when they provide the same service to clients. But the group stops short of saying the standard should be the more expansive and potentially more costly fiduciary standard.

Changing to a tougher standard won’t be easy. “They’re going to have to rejigger the whole bloody thing…and rethink what services they offer and by whom,” said William Spiropoulos, chief executive of CoreStates Capital Advisors LLC, a Newtown, Pa., money manager. Mr. Spiropoulos, who worked as a broker for many years, now operates under the tougher standard.
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Stanford Arrested

Editor — Fri, 19 Jun 2009 09:00:29 +0000

Allen Stanford was arrested shortly after being indicted.

Had anyone done a full-on fiduciary review, they could have gone a long way to side-stepping the Madoff and Stanford crimes. In Madoff’s case, there was no transparency: Madoff was the Investment Advisor, the Broker/Dealer, and the custodian of the client funds.

You couldn’t have stopped the crime from happening, but you could have avoided being a victim.Similar Posts: