Are You A Fiduciary? SEC’s Attempts to Create More Distinction

Posted on March 31, 2015March 31, 2015 by admin

Brokerdealer.com blog update profiles the financial industry is bubbling thanks to SEC effort to redefine terminology and specifically, who it applies. In this case, the confusion comes in with who is a fiduciary and who isn’t. This blog update is courtesy of The Philadelphia Inquirer columnist, Erin Arvedlund. The excerpt below comes from both Arvedlund’s blog and her Monday column, “Monday Money Tip: Beware financial advisers who are not fiduciaries“.

Before you sign on with a money manager, ask: Are you a fiduciary? If yes, great. If not, go in with your eyes open.

Fiduciaries, by law, have to do the right thing by their clients. No one on Wall Street wants, by law, to have to do the right thing.

Some street professionals are fiduciaries; registered investment advisers generally are, brokers are not.

And the distinction grows every day.

Anyone whose job is to raise sales cannot meet the fiduciary standard, notes Knut Rostad, president of the Institute for the Fiduciary Standard.

“Brokers may provide useful product recommendations, but they cannot meet the fiduciary standard,” Rostad says.

“They can no more provide objective advice about investments than can the Ford car salesman objectively advise on cars. They may be terrific people but, by virtue of what they do, they will most assuredly provide terrible advice.”

The issue is confusing, and Wall Street wants to keep it that way.

Read the entire article from the The Philadelphia Inquirer, here, and for more financial commentary, click here for Erin Arvedlund’s blog.

Finra Focus On High-Frequency Trading; HFTs Might Need BrokerDealer License

Posted on March 26, 2015 by admin

BrokerDealer.com blog update profiles the latest shoe to drop as both the US Securities & Exchange Commission (SEC) and Finra contemplate regulatory changes that could require firms engaged in high-frequency trading aka HFT to become registered brokerdealers. Below is excerpt of coverage from FT.com

US regulators have moved to close a loophole that allows some high-frequency trading firms that trade equities away from regulated exchanges to operate with light supervision.

The Securities and Exchange Commission on Wednesday proposed requiring proprietary traders to become members of the Financial Industry Regulatory Authority, a markets regulator.

The change would give authorities greater oversight for the day-to-day operations and recordkeeping for many high-speed traders and electronic market makers who dominate much of trading on US equity markets.

“Today’s proposed rules would close a regulatory gap by extending oversight to a significant portion of off-exchange trading,” said SEC chair Mary Jo White.

It is the first move by the US regulator to tighten monitoring of high-speed electronic traders, which aim to profit from rapid-fire moves in the market, following intense scrutiny on the industry a year ago. Flash Boys, a book by author Michael Lewis, alleged that high-frequency traders were among the beneficiaries to a market structure that was “rigged”. That led to calls for greater oversight of HFTs and off-exchange trading which had been building as equity trading increasingly moved to venues outside the traditional exchanges.

The SEC’s proposal would amend a rule that exempts certain brokers and dealers from membership in a national securities association. The existing rule reflected practices more than two decades ago, when equity markets were dominated by floor-based exchanges which could more easily regulate all of their members’ trading activity.

That world has largely disappeared as the emergence of high-speed technology and alternative trading venueshas helped usher in a new breed of proprietary traders that dominate trading. Although some have registered as broker-dealers at Finra, such as RGM Securities, Quantlab Securities and Tradebot Systems, there are also many that have not.

To read the entire story from FT, click here

Ex-New Jersey Broker Dealer Has A Good Time On His Clients’ Dollars

Posted on March 24, 2015March 24, 2015 by admin

Brokerdealer.com blog update profiles ex-New Jersey broker dealer, Evan Kochav, who stole more than $500,000 from clients and using it spend on poker at casinos and football tickets. This brokerdealer.com blog update is courtesy of NJ.com’s reporter, Christopher Baxter “Ex-N.J. stock broker indicted for stealing $562K from clients for poker, football tickets“. An excerpt from NJ.com is shown below.

A Jersey City man has been indicted for stealing $561,745 from clients of his investment firm and spending the money on personal expenses including poker at casinos and football tickets, state authorities said today.

From 2012 to 2014, Evan Kochav, 33, allegedly stole money from 10 investors he had solicited through his Red Bank-based firm, White Cedar Group, which he marketed as an economic consulting firm that had links to investment and business groups worldwide.

But authorities said the business was a front for Kochav, a professional poker player, to divert money to himself in order to pay for his gambling at casinos in New Jersey, Pennsylvania and Florida and on at least two poker websites.

He also allegedly transferred money to his wife and paid for shopping, dining, air travel, hotels, football tickets and other entertainment. A small sum was paid to his investors in order to cover up the scam, authorities said.

“Kochav bluffed investors like the poker player he is, claiming ties with lucrative business ventures around the globe to convince clients their hard-earned money was securely invested,” acting state Attorney General John Hoffman said.

The indictment, handed up by a state grand jury Monday, charged Kochav with theft by deception, money laundering, misconduct by a corporate official and writing bad checks for more than $85,000 to a client who had questioned what happened to his money.

For the entire article from NJ.com, click here.

Banned BrokerDealer, Cacchione, Backs Into Industry via RIA —Gets Busted Again

Posted on March 23, 2015 by admin

Brokerdealer.com blog update profiles David Scott Cacchione’s , a former managing director of Investment Brokerage Firm who was sentenced to 5 years in prison in 2009 for his role in defrauding lenders into more than $100 million in loans, new failed attempt to get back into the brokerdealer game. This update is courtesy of a 20 March InvesmentNews article “SEC shuts down ex-broker’s attempt to start RIA from jail” with an extract from the article below.

Convicted felon David Scott Cacchione, who was barred from the brokerage industry in 2009 for helping orchestrate a $100 million fraud scheme, has been barred again by the Securities and Exchange Commission after he tried, while still incarcerated, to re-enter the securities industry through a registered investment adviser.

Mr. Cacchione, 50, attempted, as others barred from the brokerage industry have, to play on the dual licensing of brokers and investment advisers to resurrect a career in the securities industry.

Mr. Cacchione pleaded guilty in 2009 to securities fraud for pledging the securities of unknowing clients to secure more than $45 million in personal loans for a friend. The scheme eventually resulted in almost $47 million in losses, according to the FBI. He also engaged in unauthorized trading in the accounts of clients, including a local children’s charity and an elderly widow, according to the SEC.

Mr. Cacchione was sentenced to 60 months in jail followed by three years of supervised release and ordered to pay nearly $50 million in restitution. According to the SEC, he had paid only $502 of that as of last August.

For the entire article from InvestmentNews, click here.

Will BrokerDealer Top Cop Really Get Tough? Fiduciary or Not?

Posted on March 18, 2015 by admin

BrokerDealer.com blog update profiling behind-the-scenes posturing as to whether the SEC might impose a new standard that imposes the concept of “fiduciary obligation” on brokerdealers is courtesy of extract from March 17 New York Times “SEC Chief May Toughen Rules For Brokers.” Below is the snapshot with credit to NYT reporter MICHAEL J. de la MERCED

The chairwoman of the Securities and Exchange Commission announced on Tuesday that she planned to explore setting a higher standard for brokers in dispensing investment advice, putting the agency in the middle of a potential fight between the Obama administration and the financial industry.

Speaking at a conference hosted by the Securities Industry and Financial Markets Association, one of Wall Street’s main trade groups, the chairwoman, Mary Jo White, expressed her personal support for setting up a so-called uniform standard of fiduciary duty.

Such a move would hold stockbrokers and brokerdealers to a fiduciary duty standard, under which they must put their clients’ interests ahead of their own. Registered investment advisers already fall under that higher bar, while brokers follow a looser “suitability” standard that requires them only to mind customers’ needs and appetite for financial risk.

“I believe the S.E.C. has an obligation” to create a uniform standard, Ms. White told the association’s conference.

Ms. White’s comments were her first public thoughts on the matter, coming months after the chairwoman promised to outline her position on the issue.

The S.E.C. has the authority — but no obligation — to create the new standard, thanks to a provision in the Dodd-Frank financial regulation overhaul. The Obama administration backed a similar initiative by the Labor Department to create a higher standard for brokers who oversee retirement investments.

A new standard from the commission would carry more weight, however, since it would encompass all brokers and not just those who oversee retirement accounts.

Behind the call for a tougher standard is concern that loose rules have potentially cost consumers billions of dollars each year. A memo from the White House that surfaced in January estimated that investors lost between $8 billion and $17 billion from their I.R.A.s last year because of a lack of protections.

To read the entire NYT story, please click here.