The Financial Advisory business is awash with knee jerk reactions, fear and loathing, discontent and uncertainty because of the DOL Fiduciary rule. It was to be expected. The DOL in typical regulator fashion issued a long, long text document which repeats itself several times, and provided no interpretation or guidance. Historically the DOL has refused to tell ERISA Plans and Advisors How to comply. They repeatedly said something like, “You make your own judgement and after the fact if we think you’re wrong, then we’ll get your ass.” They did say this time that “sometime soon” they’d come up with some guidance. I can hardly wait. This is what happens when you have junior lawyers writing something that impacts a business.

In the meantime you can hear or read: 67% of insurance financial advisors expect to lose some or all of their low to middle income clients. Another 17% of these same advisors have no idea how they would be affected. 29% of Advisors think it would be an “opportunity.” Do you think they were already fee based fiduciary advisors? 10% of Advisors are considering leaving the business. 18% of advisors were “reconsidering their careers”. The fund business will change dramatically in fees and share classes. The annuity business will die. The Brokerage industry will lose $11 Billion in revenues in the next 4 years, even without the help of Wells Fargo. Independent IBD’s will lose $350 Billion is assets. ETFs will soar. Smaller accounts will gravitate to robo-advisors? There is an increase in Advisors and smaller brokerage firms outsourcing their 401k business. The DOL said they “want to hear from Advisors about any struggles they’re experiencing trying to understand the rule and how to comply”. No way they have enough call center employees to field that volume of calls. So, what does an Advisor or brokerage firm do:

1. Drop out of the business? Some will

2. Start a Robo-advisor? Bad idea

3. Quit selling insurance? Some will

4. Look real hard at ETFs, so you don’t get left behind? Bandaid

5. Nothing? Loser

6. Pay off your debt in anticipation of a pay cut? Maybe

7. Move all the business to fee-based and assume a fiduciary role? Best solution

8. Something else?

Probably One firm has a great idea, from a business perspective: State Farm. Starting in April, 2017 they will only sell and service mutual funds, variable products and tax qualified bank deposit products through a self-directed customer call center. No, it doesn’t help Advisors, but its a good business decision. Still their financial advisors can concentrate on insurance and fee-based fiduciary products, if they allow it.

Quandary? Yes. Easy to solve? Yes. Complying with the Rule is not that complicated despite what those lawyers hypothecate about.

Broker or Advisor, make prudent decisions that are justifiable as being in the client’s best interest. Specifically:

Disclose all the fees (Yes, including yours). No “double dipping (You can’t collect a 12b-1 fee and an advisory fee on the same account.)

Have a documented process to discuss with your client an IRA rollover from a 401k. Forget about A share mutual funds.

Broker: The BIC exemption is not rocket science, and if you have an ethical approach to your business, you can comply with it. Specifically: You can still sell commissioned products to Plans and participants. Sure, you might have to have a few more disclosures such as telling clients how much you actually make on the transaction. You still have the “Best interest consideration that better be documented”.

Like I said earlier, if you don’t want to disclose your fees, maybe you should consider a sales job at Shoes R Us in Paintball, Arkansas. You’ll need a new contract. We have a template. You will need website disclosures. You can still sell REITS, Hedge funds or annuities to a retirement plan. It requires a process and meeting the best interest test. “Fiduciary” is nothing to run from. All those independent IAs that have been selling that “they are a fiduciary and brokers are not” will now have no competitive advantage. STEP UP!

Our disclosure: We have all you need to know about the DOL Rule in 2 pages in “DOL Rule Abstract”, the Edward Jones plan, comments on other BD/IAs, and a process development detailed plan on our website See the resources section. We have the definitive Fiduciary advantage book The Fiduciary Sale, revised edition out next month, and a collection of 6 page guides that tell you exactly what to do in print in November.

Stay Tuned…


by John Lohr


It wasn’t a fraud, but the family impact was worse. A UPS employee died after his last day of work, but before he officially retired, but his family was not allowed by UPS or the Court in Massachusetts to collect on 10 years of annuity payments from his retirement plan. The Court did say it regretted the “heartbreaking” outcome. I’m sure the heartbroken family appreciated the Court’s sentiment. Dante’s Heat Index: 10+ (off the charts).


The Securities and Exchange Commission has been running a big ad on their website: “WHISTLEBLOWER REWARDS TOP 100 MM.” Actually, now more than $111 Million so far. Just last week the SEC announced an award of more than $4 million to a whistleblower whose original information alerted the agency to a fraud. On a related note several firms that were ratted out tried to retaliate against the whistleblower (even though it’s supposed to be anonymous?) They lost and were hit harder. Keep it up. Since inception in 2011, there have been only 34 secret tips. There have been hundreds of frauds reported. How many more are out there? I’m glad it’s anonymous. Dante’s Heat Index: The SEC gets air conditioning for this.


Hills Silica Company Gordon W. Jenkins, Theodore P. Sweeten, Francis W. Kreais and Craig L. Parkinson were charged by the SEC with orchestrating an offering fraud involving the sale of interests in a purported mining company. $504,436.26 in promissory notes were sold to investors as financing for Jenkins’ mining company, Arco Hills Silica Company. Too good to be true: You know what they say. Investors were guaranteed a return on their investment ranging from 53% to 120% within 30 to 90 days of purchasing their notes. $422,536.58 of it went to pay for the three’s daily expenses, entertainment, house payments, legal expenses and medical bills. $25,394.68 went to old investors. Investors relied on a false and misleading geologist report by a Craig Parkinson. Supposedly the mining company had mining claims that contained 460 million ounces of gold that would be worth $805 billion. Supposedly Parkinson knew about the solicitation. Jenkins disgorged $82,757.06, plus prejudgment interest of $12,616.73 and paid a civil penalty of $82,757.06. Sweeten disgorged $227,702.32, plus prejudgment interest of $23,238.73 and paid a civil penalty of $227,702.32. Kreais disgorged $112,077.20, plus prejudgment interest of $12,662.75, and paid a civil penalty of $112,077.20. Parkinson disgorged $10,000, plus prejudgment interest of $1,354.21, and paid a civil penalty of $40,000. I’m betting the earlier investors had their payout clawed back. Dante’s Heat Index: 6 for bringing in a crooked geologist.

BOK fraud

A BOK Financial Corporation subsidiary Bank trust department sold fraudulent bond offerings managed by Christopher F. Brogdon, an Atlanta-based businessman. Brogdon was charged with fraud and ordered by the court to repay $85 million to investors. The Bank knew that Brogdon was withdrawing money from reserve funds for the bond offerings and failing to replenish them, and he had failed to file annual financial statements for the offerings. BOKF and Neilson also knew that the nursing home facilities serving as collateral for one of the bond offerings had been closed for years. But a Bank officer allegedly warned others that disclosing these and other problems could impair future business and fees from Brogdon, upset bondholders, and cause regulatory issues for bond underwriters. Therefore, they decided not to inform bondholders as required. Failing in their role as gatekeeper and fiduciary BOKF paid $984,200.73 of the fees the bank collected from its work with Brogdon plus interest totaling $83,520.63 and a penalty of $600,000. Dante’s Heat Index: 5 for lousy due diligence.

Tycoon Energy

Tycoon Energy, Inc. president, Matthew Dee Nerbonne, is charged with orchestrating an oil and gas fraud. He raised money from investors based on false projections, made the investors pay for well drillings, including one never drilled, and none of the investments became commercially viable. Nerbonne did pocket about $1.5 million of the investor’s money, which he used to pay for his personal expenses. Dante’s Heat index: 5 for a bad name

Wells Fargo

What can you say about Wells Fargo? Why had thousands of Wells Fargo employees fraudulently opened credit and deposit accounts in customers’ names, without the knowledge of those customers?

CEO John Stumpf is to blame.

A Wells Bank goal was to have each customer have 8 accounts or products with the Bank, regardless of whether they needed them or not. Stumps was skewered by the Senate investigation committee last week. Stumps said that “the vast majority of our people did it the right way.” Kudos to New Jersey Senator, Robert Menendez who swung Stumpf with “You and your senior executives created an environment in which this culture of deception and deceit thrived.” Do you get it now, Mr Stumpf? Reminding Stumpf of his testimony that the average Wells Fargo banker earns “good money”, between $30,000 and $60,000 a year, the senator asked what Mr Stumpf made in 2015. “$19.5 million.” “Now, that’s good money,” Menendez replied. Senator Elizabeth Warren, normally quiet and not outspoken at all butchered Stumpf with, “This isn’t the work of 5,300 bad apples. This is the work of sowing seeds that rotted the entire orchard…You squeezed your employees to the breaking point so they would cheat customers and you could drive up the value of your stock and put hundreds of millions in your own pocket…You should resign. You should give back the money that you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission,” she said. This Monday the State of Illinois said was ceasing doing business with Wells Fargo, which California did last week. Stumpf last week resigned his position as advisory council member for the Federal Reserve Bank of San Francisco. According to Wells, Stumpf will forfeit $41 million in unvested stock. In the meantime Wells Fargo is facing putative class action from shareholders filed Monday in California federal court that alleges the bank duped its investors and violated federal securities laws by misrepresenting its cross-selling activities that resulted in millions of unauthorized accounts opened up in customers’ names. Wells Fargo stock has dropped 14% since the debacle broke and there are persistent rumors that Warren Buffett spoke to Directors, but so far Buffett has denied that. He did say that he hasn’t ever committed to any of his positions however. It is said that if Stumpf did step down, according to his termination deal, he would receive $134.1 million. That’s about $21,000 for each employee fired for participating. Dante’s Heat Index 10 for hitting Mom and Pop small saver.

Another Wells.

This one a Ponzi scheme William J. Wells, a former Promitor Capital LLC investment adviser got 46- months in prison and must pay up $555,000 for a six-year scheme. He had lied to family and friends, using their investments to make payments to earlier investors. He also used their money to fund his own expenses. He is also expected to make restitution in the neighborhood of $1 million. Wells said alcoholism was to blame. He started in 2006 lying to friends and soliciting money for a private fund. The fund, it turned out was for his own trading losses, personal expenses, credit card bills, car payments and private preschool tuition, and then payments to unhappy investors. Nothing new or even creative, Dante’s Heat Index 4

Once a Crook

“I am not a crook” Richard Nixon

By John Lohr

Bernie Madoff didn’t invent it, Gordon Gecko didn’t perfect the “Greed is good” philosophy, and the regulators won’t end it. Scams, fraud and fat cat greed have been with us for millennia. It’s the way we’ve done business.

The South Sea Bubble

In 1711, the English government was wallowing in debt, so an enterprising group of merchants (read: crooks) calling themselves the South Sea Trading Company bought a load of the debt, and started hawking its shares on the market. Within months, the stock had soared from £100 to £1000, with no end in sight. The British government gave them exclusive trading rights to some ports Spain was allegedly willing to part with in Chile and Peru. They imagined piles of gold and sold their shares as the economic opportunity of a lifetime. But, according to historians, “The Earl of Oxford declared that Spain would permit two ships, in addition to the annual ship, to carry out merchandise during the first year… [but] the first voyage of the annual ship was not made till the year 1717 and in the following year the trade was suppressed by the fight with Spain.” Unfortunately, nobody was listening, instead followed a rumor that trading was unlimited. Investors went giddy, the Company made boatloads of cash from them, and imitators came and went quickly, along with the investor’s money. Stock priced soared and the higher they went, the more the investors fought to get in (kind of like Madoff, now that I think about it). The Company insisted profits were just around the corner, just like those liars at Enron. The “bubble burst, as all bubbles do when nobody wanted to buy stocks anymore and those that had them, couldn’t sell them. According to historians, the now wealthy directors of the South-Sea Company, told investors what great things the Company had done for England. Then they bolted with the money. (Sounds like, well, name a merchant bank) We even had our own taste of corruption, greed and scandal here in Wyoming:

The Teapot Dome Scandal

When President Warren Harding gave Senator Albert B. Fall, his Secretary of the Interior control of the Teapot Dome, Wyoming oil fields in 1921, Fall promptly leased the Teapot Dome to his pal Harry Sinclair’s Mammoth Oil Company In return Fall received about $400,000 from the oil barons. He tried to keep it secret but his newfound wealth caught attention. A committee of the U. S. Senate committee uncovered the crooked dealings and went public in 1924. Fall was the subject of criminal trials, hearings and so on, until finally he was found guilty of bribery in 1929, fined $100,000 and sentenced to one year in prison. Harry Sinclair, who refused to cooperate with the government investigators, was charged with contempt and received a short sentence for tampering with the jury. Overall the Teapot Dome scandal came to represent the corruption of American politics which has become more prevalent over the decades since the scandal. Nothing like what we have today, though.


And then there was Carlo Pieto Giovanni Guglielmo Trebado (“Charles”) Ponzi who developed the criminal enterprise that today bears his name. The scheme was simple in its essentials. 1) find investors. 2) find more investors. 3) Use the money from the second group of investors to pay off the first group. 4) Profit. 5) Repeat until indicted. This is what is now known as a Ponzi scheme. Starting with a loan of $200 and promising a 50% return for investors within 90 days, he sold 5000 times more International Reply Coupons (mail receipts) than were ever issued and pocketed more than a million dollars a day until the house of cards collapsed when he was 38. Today he looks like an amateur; Bernie didn’t even get caught until he was over 70. More to come from Dante’s Corner©.

[From Somebody Else’s Money© 2010, John and Ian Lohr, Isle Press. Edition 2 Release date October 31, 2016] John Lohr can be reached at


by John Lohr

I write for and contribute comments for a high profile investment website which has 7 million investor subscribers. We have been having a pointed discussion among the contributors and investors as to the value of financial advisors. Some don’t think advisors add no value to the
performance, net of fee. Performance is a big talking point, even though some contributors have tried to point out that there are hand-holding and other psychic services advisors provide.

Some investors are just lost. Some are playing the adult version of gaming. Whatever the reason, there is a high percentage who just do not want to deal with an advisor.

Now, we can argue whether we should or ever could attempt to convert these investors to an advisor model. I personally think it is folly to try to do so. Some people just want to do what they do, and that’s OK. Some advisors think an advisor’s value is in preventing the client from blowing themselves up, but do they really? Some advisors think the advisor value lies in preventing a client from bailing out at the wrong time. But, I will contend, that’s wrong. What these advisors fail to realize is that investors have a real reason for making decisions as weighty as bailing out. It is the basis of psychological behaviorism. Fear, Comfort, Sleep at night, remembering a past event that had perhaps drastic consequences, Volatility nightmares. Did you ever consider that maybe your client is not psychologically equipped to watch their portfolio or their stock go up one day and down the next. Ask Oprah. So, while you’re trying to motivate that investor to “stay the course” you may be making a mess out of his or her mentality. It may sound radical, but its Ok for the client to make a mistake. Another error in judgement some advisors make is believing so strongly in their investment strategy and philosophy, that they believe it is the only “right” way. A black box, monte carlo simulations, liability management, free cash flow analysis, technical momentum plays.

Some advisors can’t understand why ALL investors don’t see the world the way they do. Well, investors have preferences: maybe one likes “name stocks: (Disney, Coca Cola, Apple). You can see, touch feel them and read about what they’re doing (Cedar Fair just opened a new roller coaster—biggest on 3 continents.) They like the “touch and feel”. Some investors favor sectors: techies like techs; healthcare professionals like healthcare or biotech; soldiers like defense stocks; financial professionals like good stories, and on it goes.

Which brings me to the point. Investors have something to say. Listen to them. Don’t try to sell them your “best” method, because it won’t be for many of them. The ones who will like your “best” method will be those who don’t really care about investments. They see investments as a

Gil Weinreich, senior editor of Seeking Alpha says Financial Planning may be the single most important component of the investment process. Teresa Schafer says every Financial Advisor should be required to take the CFP exam. Pause there a second. The exam goes deeply into
tax and estate planning, retirement planning, real estate and a host of other things that Advisors should know to help their client create an investment plan. Len Reinhart says today’s investor spends more time in planning a vacation that planning their financial life. Media advice on
investing is terrible. Reinhart says today’s technology and tools can enable an Advisor to engage in “Aspirational Investing.” It’s all about goals, objectives, lifestyle choices and being able to do what the investor really wants to do.

Listen to your investors. Here’s what some of them have actually said:
“If financial regulators were more sophisticated and less afraid of offending powerful political lobbyists (and future employers), the regulators would recognize that the act of charging clients
a percentage of AUM is a breach of fiduciary ethics.” “When you are left with your entire retirement savings on your lap, buying a few books on
Amazon doesn’t really do it. The market was crashing, our holdings were dropping rapidly and we had no one to help us. Should we have bought some books or taken a few courses during that period….?…maybe, but we didn’t. We were facing our savings going down the tubes. We didn’t know where to turn.” “We met with this very nice woman and let her manage it. We signed a contract with her that it would be invested in very conservative investments. 60% bonds.

Long and short, a year later, the market started going down and down. We couldn’t reach her as the market crashed. I called, called. I was told she was away and no one else could access the account. Well, we eventually threatened UNNAMED FIRM with a lawsuit if we couldn’t access our account. This advisor never appeared again. We finally were able to access our account after 5 months of threats. We lost almost 60% of our IRA. We also found that the portfolio was invested in a ‘high risk’ portfolio. Mostly stocks, many companies do not exist today.” “I asked a number of retired people, friends and family if they were happy with their investments. They all said they were, they got their payments each month. When I asked if they knew what they were invested in, the resounding answer was ‘no, I have no idea.’”

“To clarify, I did not post here to find an advisor. I am trying to educate myself to possibly handle things myself.” “I guess ‘buyer beware’ but I didn’t know that back then. I wouldn’t even know that my current
broker was not working for our best interest. We trusted him very much. We had no involvement in our portfolio. That was the mistake, but I wonder how many other people have no idea what they are invested in.”
“Sometimes life takes quick, unexpected turns where one does not have the time nor ability to stay on top of the portfolio. You trust who you hired and trust he/she is looking out for you.” “If it’s true that long term market returns are relatively predictable and that there is no value
added by active management, it makes no sense to give RIAs a rising income that’s turbocharged by the (passive) compounding of inflation and market returns.” “This is a new world to me. There is so much I do not understand, but I’m working on it.”

Advisor or Investor: How would you respond?

Hey Bootleg Frankie

By John Lohr

We have been researching Securities frauds since 1986 beginning with Securities Fraud in the Digital Economy followed by our flagship, since 2010. Looking at my latest list of frauds from the SEC (see website), I got thinking about email securities fraud.

Most of our readers and subscribers know the oldies but goodies: The Pump and Dump, Pyramids and the “,mistaken” phone call or text from “Breathless” Mahoney:

“Hi Jim (You’re not Jim), My Friend Salamander just gave me some news about his company Pills R Us. They haven’t announced it yet, but they’re getting an approval from the FDA on a proven cancer curing drug. I don’t know about you, but I’m calling my broker now to load up…”

It seems theres a new take on these weekly. In fact the guy who invented the Nigerian email scam ( somebody had to be the first) just won the Ignoble Prize.

Well, how many of you have received emails like this one? (YOU’LL FIND MY PERSONAL LIST OF AD MONGERS TO AVOID BELOW)

“Hello BOOTLEG FRANKIE (THAT’S YOU) FROM MICHAEL Re: Your $1486.68 Affiliate Payment

This is a notification to let you know that once your start using this system, affiliate commissions will be released to you weekly… GET IT NOW !! This Makes $1486.68 OVERNIGHT (Proven). To your success, – Mikey Big Profits Code Founder P.S. There are only 3 spots available in your area. Download it now before its too late.”

The thing about emails like this is that they are RELENTLESS. They hound you daily: “Your payments are on hold until you complete your account setup. FINISH THAT REGISTRATION NOW !!!!” “You can’t get paid until you activate your account.”

“YOU’RE NOT LISTENING !!!! This is your 3rd and LAST CHANCE to download.” “All access will be removed in the next 12 hours. After this point you will no longer qualify. You’re losing your commissions if you miss this.” “You got Unclaimed $1842.81 Cash Profits” “TRADE FOR FREE enables the average guy to make money from other peoples developments without having to know a single thing about coding or trading.” I could go on and on, but the point is there are thousands of these scams: “Free Profits;” “Proven method;” “This one really works”; it’s all garbage. In fact if you get an unsolicited investing email from someone or something that has hype like this in it: “Proven ! Guaranteed ! Collect now ! You were selected… Actual results… Testimonials. They call you by name (or Bootleg). Fancy tech sounding companies. Saying, “Make money like Facebook” (or wherever). Make money overnight ! All you need is a PC (Apple users are out, I guess). From anyone called “Professor,” “Doctor,” “Pastor” that you don’t know personally. If the email address does not match the name of the company. If they refer to events that didn’t happen (‘In our last conversation, “your current project’…)” DELETE IT.

So, are these come-ons legit? What’s your definition of legit? One thing for sure, they want your money. Are they honest? SERIOUSLY?? NO. Are they ethical? See answer just above. Are they frauds? Probably some. Are they scams? SEE ANSWER ABOVE Do they have money waiting for me? If you have to ask this, I give up. Just for fun, here is a partial list of places I block. Quantom Code. Zero Loss Software. Tradex Confidential. ZLF. MPP. Binary options. Anything with backtested results that are touted in more than one paragraph. Any outfit that emails me more that 3 times a week. In fact, we’re doing research on consumer fraud for our If you have tips or war stories to share, especially on trading systems or investment schemes that are too good be true we’d love to hear it. For more war stories on fraud and other ways to lose the ranch, keep in touch at Until next time, I GUARANTEE you’ll hear from me.

Regards, John

DANTE: TURN UP THE HEAT: Our fraudsters of the week: CAUGHT

The reason we never put out Somebody Else’s Money in the mainstream hard cover book world was that we just couldn’t keep up with the crooks. So here we will give you the weekly investment frauds and their short stories, complete with a Dante’s Heat Index on a scale of 1-10.

Ever Work at Morgan Stanley and Have their Company 401k? A lawsuit filed Friday accuses Morgan Stanley and its board of mismanaging the firm’s 401(k) retirement plan and costing 60,000 employees hundreds of millions of dollars. The complaint was filed by a former employee and seeks to cover other workers. It alleges that the company picked inappropriate and high priced investments so that the bank would profit at the expense of its staffers. Dante’s Heat Index  6

The SEC Charges FRAUD Against a Hedge Fund Manager who Allegedly Scammed the Terminally ill. The SEC says the Manager and his firm paid terminally ill individuals to use their names on purportedly joint brokerage accounts so he could purchase investments on behalf of his hedge fund and redeem them early by invoking a survivor’s option. Donald Lathen of New York City Hedge Fund, Eden Arc Capital allegedly used contacts at nursing homes and hospices to identify patients with less than six months to live. He successfully recruited at least 60 of them by paying them $10,000 apiece to use their names on accounts. When a patient died, Lathen allegedly redeemed investments in the accounts by falsely representing to issuers that he and the terminally ill individuals were joint owners of the accounts. Lathen’s hedge fund was the true owner of the survivor’s option investments. Issuers paid out more than $100 million in early redemptions as a result of the alleged misrepresentations and omissions by Lathen and Eden Arc Capital. Andrew M. Calamari, Director of the SEC’s New York Regional Office said “Lathen allegedly put hedge fund client assets at risk by keeping them in accounts in his and the terminally ill individuals’ names rather than properly placing the hedge fund’s cash and securities in an account under the fund’s name or in an account containing only clients’ funds and securities, under the investment adviser’s name as agent or trustee for the client.” So, let’s see, that money belonged most likely to beneficiaries, siblings, kids… SO Latham allegedly stole somebody else’s money. Dante’s Heat Index 20 (yes, out of 10)

Goldman Sachs Head Trader Barred from the Industry Simply by Misleading Customers into Paying Higher Prices. NO!… Edwin Chin, the former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then re-selling them at higher prices to the buying customer with Goldman keeping the difference (and he increased his own compensation while doing it). Chin also misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory. Chin’s gone from the business, thankfully, and is $400,000 lighter. Dante’s Heat Index 9

Whistle blower Sidestep Caught. Health Net, Inc., a California-based health insurance provider has agreed to pay a $340,000 penalty for illegally using severance agreements requiring outgoing employees to waive their ability to obtain monetary awards from the SEC’s whistle blower program. What did they have to hide? Probably nothing, right? They agreed to an SEC cease and desist order and promised to try to get in touch with all the former employees to let them know that whistle blowing is a protected right. Sure, no monetary penalties. Dante’s Heat Index 4

SEC Charges Stockbroker and Friend with an Insider Trading Scheme to Profit in Advance of Two Major Announcements out of a Pharmaceutical Company. Paul T. Rampoldi and two other brokers at his firm were apparently tipped by a then-IT executive at Ardea Biosciences ahead of the company’s announcement of an agreement to license a cancer drug and later tipped him in advance of its acquisition by AstraZeneca PLC. They made approximately $90,000 in illicit profits by trading ahead of those announcements based on nonpublic information that flowed to them through one of the fellow brokers who learned it from the other after he was tipped by the IT executive. They would subsequently divide the profits among them. The SEC seeks permanent injunctions as well as disgorgement, interest, and penalties. Dante’s Heat Index 5

Defendant in SEC Insider Trading Action Found Guilty by Federal Jury in a Related Criminal Case. On August 17, 2016, a jury in federal court convicted Sean Stewart of insider trading and related charges. He is presently scheduled to be sentenced on February 17, 2017. In a scheme spanning at least four years, Stewart illegally tipped his father, Robert K. Stewart, about future mergers and acquisitions involving clients of two investment banks where Sean Stewart worked. The complaint alleges that his father, a certified public accountant, cashed in on the tips by placing and directing highly profitable securities trades ahead of the public announcement of these corporate transactions, generating approximately $1.1 million in illicit proceeds. Guilty, Guilty, Guilty and there’s an SEC action still pending. Dante’s Heat Index 7

Court Enters Final Judgment Against Boston-Area Defendant in Insider Trading Case. Patrick O’Neill, of Belmont, Massachusetts, was found guilty of engaging in insider trading in the stock of Wainwright Bank & Trust Company (“Wainwright”). O’Neill, a former senior vice president at Eastern Bank Corporation, apparently learned through his job responsibilities that his employer was planning to acquire Wainwright, and he then tipped Watertown, Massachusetts real-estate developer Robert H. Bray (“Bray”), his friend and fellow golfer with whom he socialized at a local country club. As a result, Bray purchased 31,000 shares of Wainwright stock. After the public announcement of the acquisition caused Wainwright’s stock price to increase nearly 100 percent, Bray ultimately sold all of his shares for nearly $300,000 in illicit profits. O’Neill pled guilty to a criminal charge of conspiracy to commit securities fraud and he was sentenced to one year of probation and a $5,000 fine. Bray went to trial and a jury returned a guilty verdict on one count of securities fraud for insider trading. Bray was thereafter sentenced to two years in prison, ordered to forfeit the proceeds of his illegal trading, and ordered to pay a criminal fine of $1 million. O’Neill and Bray were both criminally charged by the United States Attorney in Massachusetts for the same conduct. Bray’s SEC case continues. Dante’s Heat Index 8


Investor Psychology


Are financial advisors making a mistake in trying to steer investors away from making what seems to be a bad idea.  Take for instance the client who calls you today and wants out of the market entirely because they’re not comfortable.  Generally, we would point out the wisdom of staying invested, historical returns, unpredictability of market timing and a bunch of conventional wisdom we’re gained over the years.  After,  your collective wisdom is a big reason why they hired you, right?  But, are we missing something?

In a recent discussion with a large number of significant investors, something rather startling was pointed out to me.  It comes from the cognitive behavioral school of consulting, and represents a large portion of the poor perception of Advisors by the significant investors.

Humans are very rational when it comes to investing.  But rational is a qualifier that is certainly different from one human to the next.  The lead investor in the discussion maintained that “All behavior is purposeful. Sometimes what is irrational to an advisor is very rational when viewed through the eyes of the one doing the behavior. Perhaps the trick is to first understand how the behavior is rational for the person doing it, and then to intervene in a manner they find “rational”.  This, he said is where Advisors miss the boat.

Many Advisors try to get clients to see things as they do rather than to simply provide useful information they can use, or not use, on their journey.  The former is adversarial, the latter collaborative.

It seems a number of behavioral scientists have written about this adversary vs collaborator, such as Gary Applegate, Happiness is Your Choice, and  Sherry Cormier, Paula Nurius, and Cynthia Osborn. Interviewing and Change Strategies for Helpers.

 We tend to focus on the client’s financial needs, but clients have psychological needs as well, which may be much more important to them.  If we are to take a client-centered approach, shouldn’t we be looking at the client’s world through their eyes?

We ask clients for referrals, but what does a referral mean if the referring person does not know the needs, mind, psychology and objectives of the referee?

The lead investor in this discussion said, “Both clients and advisors arrive at the first meeting with a set of expectations for the roles they and the other person will be fulfilling. Perhaps the advisor’s job (after hearing why the client is there) is to facilitate the client expressing their expectations, to share the advisors expectations, to provide a realistic picture of process/outcomes, and to work with the client to resolve any differences in role expectations or relationship demands. Thus, the advisor is working to form a working alliance with the client to meet the needs of the client rather than working on “selling” the client on the advisor’s investing philosophy.”  Agreement prevailed.

The result of this discussion was that investor consensus said a truly superior financial advisor can see the world through the eyes of the client without judging the client. By working from this shared worldview the advisor will be more effective.

Like each of us, our clients have a reason for everything they do.  Shouldn’t we take the time to really get to know them, their likes and dislikes, and what makes them tick.  Like us, investors believe they are doing the things that are best for them.  Just because we’ve been in this business more than a few years, why do we have the right to judge our client’s actions or decisions without first actually understanding them?

Comments welcome.  More on this next time.    John

The Rube Goldberg Theory of 401(k) Plan Fee Disclosure

By Mark Mensack, featured guest contributor

How would you feel if after buying a new car you discovered you paid too much? Odds are you would be upset, but paying too much for your car has no effect on your driving it for years to come. Paying too much for your 401(k) plan, however, is like a leak in your gas tank; the ultimate effect is that neither is going to take you as far as you need to go.

Regrettably, there have been many leaky plans since the inception of the 401(k) back in the 1980s, but not until 2012 did 401(k) service providers have a legal responsibility to disclose all of their fees and compensation. While leak implies small, according to the DOL, 1% in unnecessary fees over an average 35-year working career could reduce a participant’s account balance at retirement by 28%!

The fee disclosure rules enacted in 2012, which were intended to plug the leak, are flawed. Reminiscent of the infamous “it depends on what the definition of the word ‘is’ is,” one flaw depends on what the definition of “disclosure” is. Some service providers apply the Einstein theory of disclosure, while others use the Rube Goldberg theory.

Einstein’s theory is based on his belief that, “401(k) Fee disclosures should be made as simple as possible, but not simpler.” His actual quote was “Everything should be made as simple as possible, but not simpler”.

For example, if a service provider applying the Einstein theory needed to disclose compensation amounting to $496,000, the disclosure would read: We receive $496,000 in compensation.

The Rube Goldberg theory is named after Rube Goldberg, a cartoonist well-known for his drawings of overly complicated mechanisms used to accomplish very simplistic tasks. These mechanisms were known as Rube Goldberg Machines, and if you’ve ever played the game Mousetrap, you’ve got the idea.

Applying the Rube Goldberg theory to the same $496,000 disclosure, it would read:

In 2011, when viewed in relation to total MSSB client assets of in excess of $1.6 trillion, the payment made by each such service provider…equaled an amount of not more than 31/10,000 of one basis point (otherwise expressed, 31/1,000,000 of one percent). We do not believe that such payments were made in connection with retirement plan business specifically, and were certainly not made in connection with any particular retirement plan, but, for perspective, the amount of retirement plan assets included in the total MSSB client asset number set forth above is approximately $112 billion.” 

The Department of Labor recognizes the Rube Goldberg theory effect writing, “Anecdotal evidence suggests that small plan fiduciaries in particular often have difficulty obtaining required information in an understandable format, because such plans lack the bargaining power and specialized expertise possessed by large plan fiduciaries.”

In order to prudently remedy this flaw, one might expect the DOL proposal to prohibit the use of the Rube Goldberg theory, and mandate that all disclosures be as simple as possible, but not simpler. Absurdly, the DOL proposed a guide, because “a guide would help small plan fiduciaries locate important information disclosed in multiple, often long and complex documents…”

In a second act of folly, the guide is to be written by service providers, even those adhering to the Rube Goldberg theory! DOL’s reasoning is that service providers “are in the best position to identify the location of information that otherwise may be difficult for a responsible plan fiduciary to find in multiple, highly technical or lengthy disclosure materials.”

The DOL proposal amounts to a Rube Goldberg remedy to solve a Rube Goldberg flaw! As a result, at retirement some of you are going to find that your 401(k) isn’t going to take you as far as you need to go.

Share this article with your employer, or better yet, your senators and congressional epresentative. If you don’t motivate them, no one else will and it’s your retirement income security that is at risk!

Originally posted at Paladin Registry.

About the Author: Mark Mensack, AIFA®, GFS® is affiliated with Fiduciary Plan Governance, LLC. and the Centre for Fiduciary Excellence (CEFEX) where he serves as an independent fiduciary consultant, and a CEFEX Analyst. He has nineteen years of financial services experience; fourteen as a financial advisor with broker-dealers, and five as an RIA. His expertise is in the area of fiduciary best practices, 401k hidden fees and ethical issues in the retirement plan marketplace. Mark also writes the 401k Ethicist column for the Journal of Compensation & Benefits and is listed among the 2013 Top 100 Most Influential People in the 401k Industry; some of his work can be found at

Financial Rock And Roll: “That’s What I Want”


Great musicians give us advice on investing.

Rock Epigrams.

“You can’t always get what you want.”

by John Lohr (with Ian Lohr)

When one speaks of investors — individuals, not banks or institutions — there is usually a distinction made between the so-called “Mom and Pop” investor (typically best served by choosing relatively low-risk investments), and the so-called “high-net-worth” investor (who may be more open to risk). Most people think of high-net-worth investors as bankers or brokers — the Warren Buffett type of investor. But there is also the Jimmy Buffett type of investor: popular musicians often have substantial levels of wealth to invest, and thus too are considered high-net-worth.

High-net-worth investors are expected to take a greater interest in their investments, and to be better informed about them, than the average investor. So what kind of advice in money management are the great musicians of rock and pop able to give us? Perhaps surprisingly, perhaps not, much of the advice is fairly bad — if the songs alone are taken at face value.

Pink Floyd is one of the biggest names of seventies rock — their 1972 album “Dark Side Of The Moon” remains a best-seller after more than four decades. In their famous song “Money,” singer David Gilmour suggests squandering one’s wealth in heedless spending. He sings of a “new car, caviar, four-star daydream, think I’ll buy me a football team.” No word about thinking of the future. Just instant gratification. In their everyday lives, however, the members of Pink Floyd have been very successful in managing their money. Rather than buying that football team, they invested in real estate, antiques, and film projects. They also reinvested in their stage show, adding spectacular elements including laser beams, giant disco balls, and a huge inflatable flying pig.

Among the other giants of classic British rock and roll is the group Queen. In their penultimate album, 1989’s “the Miracle,” Freddie Mercury sings “I want it all and I want it now.” Mercury and his bandmates parlayed their success — tempered by Mercury’s 1992 death from long-term illness — into a multi-billion dollar media empire, including feature concert films, elaborate high-energy international tours, and even a recent Broadway musical.

Fans of eighties rock will no doubt remember Dire Straits, headed by noted guitarist and songwriter Mark Knopfler. Their song “Money For Nothing” spawned one of the most influential music videos of that decade, featuring early computer animation. In this song, Knopfler sings of the ideal financial situation: “That ain’t workin’ that’s the way you do it, get your money for nothing…” Knopfler has made it abundantly clear that the song is intended as satirical criticism on the public idea of the Rock Musician. Rather than getting “Money For Nothing,” professional musicians work as hard or harder than the average white-collar office worker. The same could be said of investors.

The marriage of Rock and Roll and rolls of dollar bills is not a new one. Almost five decades ago, a rather obscure soul singer, Barrett Strong, first sang of his opinion that “The best things in life are free, but you can save them for the birds and bees, give me money…that’s what I want…all I need is money.” The song became the first hit single on Motown records, and Strong found a career as a hit songwriter. His original version is perhaps not as notable in itself as are the other singers and groups who have performed or recorded it, including the Beatles, the Rolling Stones, Ike and Tina Turner, the Supremes, and many more.

As for the eponymous fab four themselves, perhaps their most concise comment on money is a negative — “all you need is love.” Compatriots on the British music scene of the time, The Rolling Stones, would have been well served to have listened to their own advice: “you can’t always get what you want, but if you try some times, you just might find, you get what you need.” Rather than concentrating on what they needed, they wasted their money in a series of well-publicized encounters with massive amounts of alcohol and dangerous illegal substances.

Speaking of booze and drugs, psychedelic songstress Janis Joplin has never been known for her fiscal responsibility. Her investing strategy appears to be related to prayer (“Oh Lord, won’t you buy me a Mercedes Benz”) and game shows (“Dialing for Dollars is trying to find me”). This blind hope for Divine guidance and exceptional luck is unfortunately emblematic of the mindset of many a modern investor. While Joplin did not survive to collect one, this is hardly the attitude to take with one’s 401(k), and certainly serves as a cautionary example.

 Musician, songwriter, playwright and humanitarian Cindy Lauper sang “Money Changes Everything” in the eighties. Today that theme is echoed every time someone buys a lottery ticket.

And of course, there are a few other rock epigrams about money, especially appropriate for hasty investors, that would be best to avoid. One might be “na-na-na-na, na-na-na-na, hey hey hey, goodbye”. These days perhaps the best rock song to express how Wall Street works is by Judas Priest: “breaking the law, breaking the law.”

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Written with my son, Ian Lohr, musician and writer


By John Lohr

Nothing in the Advisory world would happen without sales.  If a sale didn’t happen, Advisors would have no clients.  Recently FI360 put out a podcast that concluded that the DOL in their new ‘fiduciary” rule were clearly distinguishing between sales and advisory functions.  I guess the implication was that sales are sales and advisory is advisory, and never the twain should meet.  How wrong that is—the two functions cannot be effectively untangled.  The hardest part of the Advisory business today is managing portfolios and growing an Advisory business through sales at the same timeStriking this delicate balance is essential.

With all of the technology currently available, what does the advisor really provide?  One answer is the introduction of human elements, the level of interaction and personalization no automatic or indexed system can replicate.  The most important human element today’s advisors need to demonstrate to us by their actions is Trust.  The client needs to know that their advisor has their own best interests in mind, and that they will make the best decisions for the investment future.  I believe that if an Advisor invests in their profession by taking the time (and money) to get educated and well informed about the investing world, they take steps toward the projection of trust.

There are plenty of research providers, third party managers, mutual fund wholesalers, Advisory programs and internal and external money managers.  There are scads of products; many of them incomprehensible.  There are product providers and distribution channels.  Do they all provide the training Advisors need?  No.  If an Advisor is at a firm, do they get adequate training?  Not a chance. There is too much pressure on production and revenue generation.

How about the Regulators? Look at the licensing requirements.  Can Clients get reassurance that their “licensed” Advisor is adequately trained to work in the Client’s best interest?  No; licensing courses are mandated by Regulators, yet they are little more than archaic technical information, legal jargon or reduced to a High School or Junior College level.  But that is not what the client needs: they need a highly trained expert that they can be certain of.

A well trained professional, knowledgeable about investing, who is a good communicator that works in the clients’ best interests, AND is a business builder is not easy to find.  There are more than 350,000 licensed financial representatives in the US today.  There are 400,000 insurance sales agents (sure, there’s some overlap).  How many have a thorough grasp of both investing strategies and client-level sales communications?  Nobody knows.  The point is that the barrier to entry in the financial advice world is nominal to ridiculously low.  So, Clients need an evaluator to distinguish among them.  Start with “Do you think you can trust THAT advisor.”

Financial Advisors seek ways to differentiate themselves from the herd.  They look to designations, and affiliations, many not worth the frame they’re hanging in on the wall.

A few, very few have genuine academic merit.  Clients may wish to follow the ancient Roman saying, Caveat Emptor.  “Let the buyer beware”.

There are a lot of self-designation programs out there.  Most of them  do little more than add letters to put after a name.  I’ve seen a lot of financial advisors with a string of alphabet soup after their name, to try to “distinguish’ themselves.  It doesn’t mean anything to us clients.

What does matter to us and should, is that our financial advisor has taken the time and expense to get educated and stay informed so that they can put forth the best solutions to their clients that they can.  If an Advisor has invested in your profession, it will show in how they treat their client, how they advise the client.  Yes, there are glib charlatans out there that are a phony as a Cheyenne dollar, but there is nothing we can do to prevent that.

If an Advisor wants to build trust among clients, they need to live it.

Sure, it may be “all about sales” but given time, training, communication and sincerity, sales will occur.  It’s hard to do in today’s financial world, but Advisors should try not to be hasty, do invest in themselves and believe in themselves.

If they project that, they’re steps closer to building Client trust.

Parts of the foregoing appeared in SEEKING ALPHA