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Sunday, March 27, 2016

What I Learned From Bullies as a Child

This blog title isn't a myth and I'm sure doesn't appear to have anything to do with things Financial.  But it does.  Bear with me.
Throughout elementary school I was in most cases the smallest kid in the class.  Even the girls.  As a result I was alluring fodder for the bullies.
One especially relentless and vicious bully, Ken (not his real name, no need to embarrass him), liked to punctuate the routine shoves, punches and hair pulling by sneaking up behind me and putting me in a choke hold.  Needless to say, this was terrifying.  And I told no adults for fear that in retaliation he would become more relentless and vicious.
I loved school!  But Ken was making me want to stay away.  I was "sick" a lot.  During one of these sick days at home I came across an ad in a comic book for a "Self Defense" course.  For $1.00.  It included a "practice dummy" (which turned out to be a fold-out poster).  I sent off the order with my dollar bill.
I studied the materials and practiced in my bedroom,  Lo and behold, here was a technique for escaping from a choke hold!:  "Reach back over your shoulders and grab the assailant's clothing with both hands.  Squat and bend forward at the same time and then immediately thrust the legs up powerfully and pull with your hands."
Skeptical of false hope, nevertheless next time "Ken" put me in a choke hold I followed the procedure exactly.  To my utter amazement, he went flying over my head, upside-down, and landed badly on the pavement.  This guy was a foot taller than I.  He missed a couple days.  But the bullying stopped and we eventually became friends  This situation got my attention.

I learned several important lessons:

  1. There are people out there who don't even know me who have the knowledge and desire to improve my life.  And they want to share it with me!
  2. Reading and study can have powerful real-life results.
  3. Strength and brains can stop bullies.
  4. Some bullies are real people, probably with more problems than they cause.
Make no mistake I don't share this to give any quarter to bullies; they need to be immediately stopped.  Kids less ingenious and persistent than I are often driven to suicide.  I do share it for all of us who were bullied as children and those being bullied now.  Don't stand for it for a moment if you witness it or know of it.

What does this have to do with your finances?  Does anyone feel financially bullied in this fake economic "recovery"?  If you do, then pull out the books, do the homework, rehearse, and seek out those who know the answers to your problems and who have the desire to share them with you!  Learn how to throw those financial bullies over your head.


Your Constructive Comments are Welcome!

Friday, March 11, 2016

8 to 10% Is A Reasonable Expected Rate of Return

Reminder:  These Financial Myths Headings are Myths.

No.  8-10% is not a reasonable rate of return, even though national investment "superstars" still claim that it is.
Here in Oregon, that point has been driven home . . . again, unfortunately, by Aequitas Management.  The article that follows is long but instructive.  (Thank you Advanced Regulatory Compliance, Inc.!)
But here are the warning signs:

  1. They put almost all of their eggs in one basket: notes on Corinthian College loans.  Investors need to understand where their money is going!
  2. They issued their own statements.  Never rely on statements issued by your broker/agent/adviser.  Always insist on third party generated statements.
  3. They were high-flying.  Take note of what your adviser himself invests in.  Fancy offices & furnishings?  Expensive cars? Jets?  Expensive client events?  You should wonder how those "investments" improve your financial situation.
So, enjoy the article.  I hope you learn something from it!

The Securities and Exchange Commission yesterday charged an Oregon-based investment group and three top executives with hiding the rapidly deteriorating financial condition of its enterprise while raising more than $350 million from investors.  Aequitas Management LLC and four affiliates allegedly defrauded more than 1,500 investors nationwide into believing they were making health care, education, and transportation-related investments when their money was really being used in a last-ditch effort to save the firm.  Some money from new investors was allegedly used to pay earlier investors
The SEC’s complaint, filed yesterday in federal district court in Oregon, alleges that CEO Robert J. Jesenik and executive vice president Brian A. Oliver were well aware of Aequitas’s calamitous financial condition yet continued to solicit millions of dollars from investors to pay the firm’s ever-increasing expenses and attempt to stave off the impending collapse.  Former CFO and chief operating officer N. Scott Gillis allegedly concealed the firm’s insolvency from investors and was aware that Jesenik and Oliver continued soliciting investors so that Aequitas could pay operating expenses and repay earlier investors with money from new investors.
“We allege that Aequitas had severe and persistent cash flow shortages and top executives knew they weren’t using money raised from investors like they said they would.  But they refused to disclose the true financial condition, continued to draw lucrative salaries, and roped even more unknowing investors into a losing venture,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. 
According to the SEC’s complaint:
  • From January 2014 to January 2016, Aequitas raised money from investors by issuing promissory notes with high rates of return typically ranging from 8.5 to 10 percent.
  • While Aequitas did use some investor money to acquire trade receivables in health care, education, transportation, and other consumer credit sectors, the vast majority was concentrated in student loan receivables of for-profit education provider Corinthian Colleges.  Corinthian defaulted on its recourse obligations to Aequitas in mid-2014, which significantly exacerbated the firm’s already severe cash flow problems.
  • The executives continued to draw their lucrative salaries, use a private jet, and attend posh dinner and golf outings, all at the expense of investors.  They used the outings to raise more money from investors.  Jesenik, Oliver, and Gillis took home at least $2.5 million in combined salaries during this period.
  • By November 2015, Aequitas could no longer meet scheduled redemptions.  Last month, the firm dismissed two-thirds of its employees and hired a chief restructuring officer.   
The SEC’s complaint charges violations of the federal securities laws by Aequitas Management, Aequitas Holdings LLC, Aequitas Commercial Finance LLC, Aequitas Capital Management Inc., and Aequitas Investment Management LLC as well as Jesenik, Oliver, and Gillis.  The SEC seeks permanent injunctions, disgorgement with prejudgment interest, and monetary penalties from all defendants as well as bars prohibiting Jesenik, Oliver, and Gillis from serving as officers or directors of any public company.
Aequitas and the affiliated entities have agreed to be preliminarily enjoined from raising any additional funds by offering and selling securities, and agreed to the appointment of a receiver to marshal and preserve remaining Aequitas assets for distribution to defrauded investors.  The stipulated orders are subject to court approval.
The SEC’s continuing investigation is being conducted in the San Francisco office by Brent Smyth, Crystal Boodoo, and Tracy Combs and supervised by Steven Buchholz.  An examination of Aequitas’s registered investment advisory affiliate, and examinations of other registered investment advisers that recommended Aequitas investments to their clients, contributed to the investigation and were conducted by Thomas Dutton, Bradley Cline, Edward Haddad, Matthew O’Toole, Caroline Smith, Bernice You, Marc Valle, and Alice Schulman.  The SEC’s litigation will be led by Sheila O’Callaghan and Wade Rhyne.
Advanced Regulatory Compliance, Inc. (“ARC”) is a national full-service investment advisory compliance consulting firm backed by its association with The Law Offices of Patrick J. Burns, Jr., P.C., a securities law practice. ARC provides practical solutions to complex compliance issues. Our key services include investment adviser registrations, mock audits, annual reviews, due diligence, development of best practices and ongoing compliance support.  If you have any questions or concerns about this newsletter, please contact our firm at (310) 275-7300.

Your Constructive Comments are Welcome!

Wednesday, March 2, 2016

All Financial Advisers Are Screened by State and Federal Regulators

I hope it isn't getting too redundant for me to remind you gentle readers that the headings of these posts are MYTHs.  This one is no exception.  Sort of.

Depending on who they work for and the kind of work they do, financial advisers are indeed somewhat screened by regulators.  After all, there are education, training & licensing requirements both up front and annually.
But does this mean that you can just trust any licensed "adviser"?  According to a recent article in Financial Advisor (a Financial Times service), the answer is . . .  "no".  The title of one article appearing in today's issue is, "Half the FAs Fired for Misconduct are Rehired in a Year". (by Alex Padalka).  He goes on to say,  "Getting fired over misconduct doesn’t necessarily mean an advisor’s career is over — in fact, almost half of them are back and advising clients within a year of termination, according to a study cited by".  In addition, 8% of FINRA registered advisors have a "disclosure event" on their records.  [I would provide both links but both sites are subscription services]  Finally, they found that "some firms specialize in misconduct and cater to unsophisticated consumers".  Amazing.

If I were looking for an adviser* I would want to use every tool available to screen them.  So should you.  In addition to simple Google searches, here are two essential background check sites:

  1. BrokerCheck, and
  2. The Division of Finance and Corporate Securities (Oregon)

Your Constructive Comments are Welcome!
*You'll note I spell "adviser" ending in "er" while most places you'll see it spelled "or".  The regulators want us to spell it "adviser".  So I do.