This week, however, we saw a new entity garner the regulators’ attention – a state.  The SEC announced on Wednesday that it had settled a fraud action that it commenced against the State of New Jersey for misrepresenting and failing to disclose to investors in dozens of municipal bond offerings between 2001 and 2007 that it was underfunding its two largest pension plans.  The Wall Street Journal reported that the SEC is also investigating a number of other states aside from Snookie’s stomping grounds for their disclosures concerning their finances.  I am not quite sure how investors should read this development.  On the one hand, one can take solace that the regulators continue to hold those individuals and entities accountable for their actions.  On the other hand, the fact that a state was charged with fraud certainly begs the question “Where does it end?” (August 21, 2010)

That said, one area of the world that clearly has not slowed down this summer has been financial regulation.  Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act with much fanfare.  In addition, the SEC has been increasing its enforcement efforts.   Indeed, in recent weeks we have seen the Commission grant its staff subpoena powers and increase whistleblower awards.  FINRA has been very active also, among other things, announcing that it had issued a number of large fines against various broker-dealers (see recent announcements here, here and here).

September often ushers in a sense of normalcy as the vacation season ends, school starts and we settle into our routines.  I suspect, however, that in the world of financial regulation “normal” will be anything but that.  Investors and financial professionals should continue to expect changes as we sort through the wreckage of 2008.

So much for a slow, hot summer.  (August 18, 2010)

Lacey recruited investors to his scheme – in which he promised that he would use his investors’ money to rehabilitate area properties, but in reality performed little to no work — with a variety of promises, among which was a guaranteed 12.5% investment return.   In addition, according to the U.S. Attorney’s sentencing memorandum:

The defendant has no criminal history.  He is married with three children. He is a college graduate and a former Henrico County Police Officer. By all accounts, he is driven and hard working.   . . .  Further, these same positive traits made the breadth and scope of Lacey’s criminal conduct possible – the victims trusted him and never suspected he would misuse their invested funds.”  (emphasis added)

Like most Ponzi schemers, Lacey not only told a good story, he was able to sell it.  As a result, dozens of victims are out millions of dollars.  I repeat:

1. If it sounds too good to be true – for example, an investment opportunity that offers a guaranteed 12.5% return – then it probably is.
2. Trust, but verify – even if you are working with someone who used to protect you.

(August 11, 2010)

The company would win because we would make a nice spread on the money

- Gary Goldsholle

In my practice, I help individuals who have issues with financial institutions, with an emphasis on prosecuting investment fraud claims.  I also help veterans prosecute their claims for VA benefits.  I never imagined these two worlds colliding . . . until now.

Recent articles in The Washington Post and Bloomberg have exposed a questionable practice in the insurance industry.   Certain insurance companies distribute life insurance benefits to survivors in the form of a “checkbook.”  These checks, however, are not drawn against a FDIC-insured bank account that the insurance company established in the survivor’s name; to the contrary, these are drawn against the company’s uninsured general account.   The company retains the insurance payout and only issues it to the survivor when he or she writes a check.  In the meantime, the company invests the payout and keeps the difference between the rate it earns on those assets and the rate it pays the survivor for leaving the assets at the company.   Phrased differently, certain insurance companies have set up a program to enable it to try to profit when one of its insureds dies.

One such company is Prudential, which runs the Servicemembers Group Life Insurance Program for our military.  According to the Post article, Prudential paid survivors 1 percent interest in 2008 on their Alliance Accounts, while it earned a 4.8 percent return on its corporate funds.   As one can probably expect, despite Prudential’s defense of its program, many are up in arms over the company’s attempts to try to profit on the death of one of our heroes.  This includes some important people at the Pentagon.

Do not automatically assume that an institution has your best interests at heart.  Trust, but verify is a solid approach.  Unfortunately, it seems that the families of our fallen heroes must also take this advice.  (August 7, 2010)

The scrutiny continues to intensify.   

On August 23, FINRA will expand its BrokerCheck program to include all customer complaints that became non-reportable after the implementation of Web CRD in August 1999.  (Web CRD is the disclosure program that FINRA uses to collect and store information on registered representatives.)  Also, starting November 6, BrokerCheck will:

• Permanently include disclosures for former registered representatives (financial advisors) who were:

• subject to a civil injunction involving investment-related activity or found in a civil court to have been involved in a violation of investment-related statutes or regulations;
• named in an arbitration or civil litigation in which they were alleged to have committed a sales practice violation, and which resulted in an award or civil judgment against them; or
• convicted of, or pled no contest to, certain crimes; and

• Expand the time period of disclosures for former associated persons of a brokerage firm to 10 years.

To FINRA’s credit, it also simplified (and codified) the process by which registered representatives can dispute the accuracy of information disclosed through BrokerCheck.

As noted in The “Permanent Record” Gets More Ink, I believe that these changes are plus for investors.  They will have as much — if not more – information about financial advisors as they do about other service providers.   As such, investors will be able to make more informed decisions about those they use to help them with their finances.

Investors who have questions about the BrokerCheck program, as well as financial advisors who have questions about their disclosures, are invited to contact me.  (August 6, 2010)

As a proud member of the Rotary Club of Richmond, I have watched a number of speakers give great presentations to our group.  However, none touched me as much as today’s speaker, Amanda Sam.  Mrs. Sam is Founder and President of One Hundred Pounds of Hope, a non-profit organization that provides emergency relief to the poorest of the poor in Cambodia.   Mrs. Sam is a survivor of the Khmer Rouge genocide and her testimony is compelling.  She saw Pol Pot’s regime break apart her family (and kill nearly 2 million Cambodians), force her into hard labor and push her to the edge of starvation. Two of her siblings died before the family reunited, walked three days and nights through the jungle to Thailand to escape and spent two years in a refugee camp before finally arriving in the United States with little more than what they could carry.

Mrs. Sam experienced all of this before she entered her teens.

Mrs. Sam and I are about the same age, yet our backgrounds could not be more different.  She has experienced heartache and sorrow the likes of which I have trouble comprehending.  It gives me pause for thought and thanks for the men and women who have manned a post and defended America against her enemies.  (July 27, 2010)