Category Archives: Investing

Pershing on creating a common vision

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The key to creating a common vision

Information for this post derived primarily from an Investment News interview with Brian T. Shea, CEO, Pershing, LLC, “The key to creating a common vision,” Jan. 1, 2012: http://www.investmentnews.com/article/20120101/REG/301019997?template=printart

As we reviewed brokerage firms to custody our client assets we landed with two very different brokerage firms that have a similar attitude.  Below is a summary of an interview with the lead at one of these brokerage firms, Pershing.

Brian T. Shea is interviewed often since he became the chief executive of Pershing LLC (in 2010), which, with $910 billion in assets under custody, is the biggest brokerage and clearing firm that most investors have never heard of. Owned by The Bank of New York Mellon Corp., Pershing employs more than 7,000 and provides services to more than 1,500 financial organizations and 100,000 investment professionals.

AIKAPA has considered the usual brokerage firms but has instead decided to custody our client assets at either Pershing or Scottrade – In our evaluation both of these firms provide the most service for the least cost.

Pershing’s Shea believes in creating a leadership environment where people can be successful and where you can get people to work together. The most important thing a leader has to do is create a shared vision, or mission, for the team.  He prides his leadership style as one that emphasizes communication.

The No. 1 person was his father who was an executive in the insurance industry. His father taught him that any profession can be a good profession but we need to do it with a passion every day – I could not agree with him more.

His comments that his father instilled a really strong work ethic in all of his children.

He said that he is really comfortable in an environment where people are open and engaged. He believes that it is really important to surround yourself with people who will share their opinion no matter what — even if they know you won’t like it.

As we move into 2012 we’ll engage more with Pershing as we transfer our clients from their current brokers to either Pershing or Scottrade.  I’m certain that as the year progresses I will be better able to comment on how well his vision translates to what advisers and our clients experience using Pershing to custody assets.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

 

 

Net Worth “Accredited Investor” – much ado about nothing

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Is this something or nothing?

Today the SEC adopted the new Net Worth Standard that excludes the value of someone’s home from a calculation that allows individuals to be categorized as accredited investors.  Is this much to do about nothing? Should we want to be labelled an accredit investor?  (see http://www.sec.gov/news/press/2011/2011-274.htm for details on the new standard announced today December 21st, 2011).

What is an ‘accredited investor’?  Someone who no longer needs the protections provided by the SEC as provided through the process of registration and regulation.  It implies that you will take all necessary steps to evaluate these investments and do not need the basic protection provided through the registration process.

The real question is not if a home value should be included but whether having a $1M in assets (with or without a home) truly qualifies you as able to evaluate unregistered/unregulated investments.  In my experience, many full time advisers and investors with several million are not qualified to evaluate and invest in unregulated/unregistered investments.

The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (final rule No. 33-9287).  See below for pertinent details:

Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status. The amendments also clarify the treatment of borrowing secured by a primary residence for purposes of the net worth calculation. Under certain circumstances, they also permit individuals who qualified as accredited investors under the pre-Dodd-Frank Act definition of net worth to use that prior net worth standard for certain follow-on investments.

SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.”

The amended net worth standard will take effect 60 days after publication in the Federal Register. Beginning in 2014, and every four years thereafter, the Dodd-Frank Act requires the Commission to review the “accredited investor” definition in its entirety and to engage in further rulemaking to the extent it deems appropriate.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Buffett or Buffet – an extra ‘t’ does matter

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Buffet or Buffett which one would you choose to invest with? Does an additional T in your name matter?*

A firm that bears no relationship to Berkshire Hathaway filed offering with the SEC last month.

Warren Buffet is getting into the high-risk business of Regulation D private placements. This is Warren Buffet, with one T, not Warren E. Buffett.

The Buffet that’s short one ‘t’ is the moniker of a new private placement connected to a stockbroker and investment adviser based in Boca Raton, Fla., named Peter Bruno.

According to Mr. Bruno’s website, he is chief executive of Wall Street Money Management Group Inc., a registered investment advisory firm. According to filings with the SEC, the firm has $17.1 million in assets under management and 122 client accounts. At the end of September, Berkshire Hathaway reported assets of $385.5 billion.

It would seem clear that the Buffet name is being used to cash in on the Buffett record and confuse consumers. Could there be any other explanation?

*Original article by Bruce Kelly, December 2, 2011.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

SEC v David Kugel (part of Madoff Ponzi Scheme)

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SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22166 / November 22, 2011

Securities and Exchange Commission v. David Kugel, 11-Civ-8434 (S.D.N.Y.)

SEC CHARGES LONGTIME MADOFF EMPLOYEE FOR HIS ROLE IN THE MADOFF PONZI SCHEME: details – http://www.sec.gov/litigation/litreleases/2011/lr22166.htm

On November 21, 2011, the Securities and Exchange Commission charged a longtime Bernie Madoff employee with fraud for his role in creating fake trades to facilitate the massive Ponzi scheme.

The SEC alleges that David Kugel, who worked at Bernard L. Madoff Investment Securities LLC (BMIS) for nearly four decades, was asked by Madoff to provide the firm’s investment advisory operations with backdated arbitrage trade information to be formulated into fictitious trading on investors’ account statements. Kugel’s own account at BMIS was among those in which backdated trades were entered, and he withdrew nearly $10 million in “profits” from the fictitious trading over several years.

The SEC previously charged two other longtime Madoff employees Annette Bongiorno and JoAnn Crupi for their roles in producing phony account statements that were sent to Madoff investors. According to the SEC’s complaint against Kugel filed in U.S. District Court for the Southern District of New York, Bongiorno and Crupi and other staff in Madoff’s investment advisory (IA) operations used the information provided by Kugel to formulate fictitious trades to appear on investor account statements.

The SEC alleges that sometime in the early 1970s after Kugel began his career with Madoff as an arbitrage trader in the firm’s proprietary trading business, Madoff informed Kugel that BMIS managed money for outside clients. He asked Kugel to provide the firm’s IA operations with backdated convertible arbitrage trades for inclusion on investor account statements. Some of these trades replicated successful trades that Kugel had actually made for BMIS proprietary trading operations. Other trades were based on historical information that Kugel obtained from old newspapers.

According to the SEC’s complaint, Bongiorno and Crupi regularly asked Kugel for backdated information about trades amounting to millions of dollars. After Kugel provided the information, Crupi and Bongiorno would then design trades that totaled that amount. These fictitious trades were highly profitable on an annualized basis, and appeared on account statements and trade confirmations sent to investors. Kugel, who opened his own BMIS account, received these account statements and trade confirmations as well.

The SEC alleges that Kugel provided backdated trade information for IA accounts, including his own. He withdrew the purported “profits” of these trades even though he knew they weren’t proceeds of actual trading activity. One trade in S&P index options in 2007 earned Kugel a profit of more than $375,000 in just a few weeks. Kugel withdrew almost $10 million from his BMIS IA accounts from 2001 to 2008.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

SEC: Facebook & Groupon Scams

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SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

Washington, D.C., Nov. 17, 2011 — The Securities and Exchange Commission today filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook before they go public.

The SEC alleges that Florida resident John A. Mattera and several other individuals carried out the scam using a newly-minted hedge fund named The Praetorian Global Fund. They falsely claimed that the fund and affiliated Praetorian entities owned shares worth tens of millions of dollars in privately-held companies that were expected to soon hold an initial public offering (IPO) including Facebook, Groupon, and others. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, Mattera and others solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds.

In reality, according to the SEC’s complaint filed in federal court in Manhattan, Mattera and his cohorts never owned the promised pre-IPO shares in these companies. The purported escrow service, headed by John R. Arnold of Florida, merely transferred investor funds to personal accounts controlled by Mattera and Arnold. After Arnold took a cut of the money for himself, Mattera stole most of the remaining funds to afford his lavish personal expenses and pay others for their roles in the scheme.

“By conjuring up a seemingly prestigious hedge fund and touting the safety of an escrow agent, these men exploited investors’ desire to get an inside track on a wave of hyped future IPOs,” said George S. Canellos, Director of the SEC’s New York Regional Office. “Even as investors believed their funds were sitting safely in escrow accounts, Mattera plundered those accounts to bankroll a lifestyle of private jets, luxury cars, and fine art.”

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, today filed criminal charges against Mattera, who was arrested earlier today.

The SEC is seeking an emergency court order to freeze the assets of Mattera, Arnold, Joseph Almazon of Hicksville, N.Y., David E. Howard II of New York City, Bradford Van Siclen of Montclair, N.J., and eight different entities also charged in the SEC’s complaint.

The SEC alleges that Mattera, who has been a subject of a prior SEC enforcement action and several state criminal actions, used investor proceeds to compensate Van Siclen and others for their involvement in promoting the fraudulent offerings. Howard, who was separately charged by the SEC earlier this year for his role in a boiler room operation, worked for Mattera as an authorized representative of the Praetorian hedge fund. Mattera, Van Siclen, and Howard were each actively involved in providing false documents and information to broker-dealer representatives in pitching their clients to invest in the Praetorian entities. They raised at least $12 million from investors across the country during the past 15 months. Almazon controls Long Island-based unregistered broker-dealer Spartan Capital Partners, which raised a significant portion of the money in the Praetorian entities.

The SEC’s complaint alleges that Spartan Capital solicited investments by phone, word of mouth, and advertisements on professional networking website LinkedIn.com. One advertisement read in part: “[Spartan] can offer the opportunity to buy pre-IPO shares of the following companies: Facebook, Twitter, Zynga, Bloom Energy, Fisker, and Groupon.” Another ad stated: “We have access to Fisker Auto, Groupon, Ren Ren, Bloom Energy and many more! Unlike most of the other investment banking firms, we let you sell your shares right at the open! You also do not need to be in NY to invest in our IPOs!”

According to the SEC’s complaint, the purported escrow accounts at Arnold’s firm — First American Service Transmittals Inc. (FAST) — played a critical role in the fraudulent scheme. Mattera and Van Siclen told investors verbally and in writing that their investments would be held in escrow with FAST. Arnold, who was charged together with Mattera in a previous SEC enforcement action, falsely held out FAST as an escrow agent for the investments. Almost immediately after receiving investors’ deposits, however, Arnold released the money to himself and entities controlled by Mattera, who misappropriated investors’ funds for private jets, luxury cars, fine art, jewelry, and other personal uses. He also transferred money to his mother Ann Mattera and his wife Lan Phan. They are named as relief defendants in the SEC’s complaint for the purpose of reclaiming investor funds unrightfully in their possession.

The SEC’s complaint charges Mattera, Van Siclen, the Praetorian Fund, Praetorian G Power I LLC, Praetorian G Power II LLC, Praetorian G IV, Praetorian G Power V LLC, and Praetorian G Power VI LLC, Arnold, and First American Service Transmittals Inc. with violations, or aiding and abetting violations of, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. The complaint further charges Mattera, Van Siclen, the Praetorian G entities, Almazon, Spartan Capital Partners, and Howard with violating Sections 5(a) and 5(c) of the Securities Act by engaging in the unregistered offering of securities, and Almazon and Spartan Capital with violations of Section 15(a) of the Exchange Act by acting as unregistered brokers.

The SEC seeks a temporary restraining order as well as preliminary and permanent injunctive relief and financial penalties against the defendants, as well as disgorgement by defendants and relief defendants of their ill-gotten gains plus prejudgment interest.

The SEC’s investigation, which is continuing, has been conducted by Karen Willenken, Michael Osnato, Richard Needham, and Yvette Quinteros of the New York Regional Office. The SEC’s litigation effort will be led by Preethi Krishnamurthy. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York, Internal Revenue Service, and Swiss Financial Market Supervisory Authority for their assistance in this matter.

# # # message reprinted from http://www.sec.gov/news/press/2011/2011-245.htm
For more information about this enforcement action, contact:Andrew M. Calamari
Associate Regional Director, SEC’s New York Regional Office
(212) 336-0042
Michael J. Osnato, Jr.
Assistant Regional Director, SEC’s New York Regional Office
(212) 336-0156
http://www.sec.gov/news/press/2011/2011-245.htm

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Where is Labuan?

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Financial Success during tough times … Labuan

Most of us probably don’t know Labuan, but amidst the major economic financial centers it is a shining star and part of what makes Malaysia such a power house. In an increasingly competitive and globalized world, international offshore financial centers rarely stop evolving and adapting to new circumstances and economic realities, and perhaps one of the most innovative, but lesser known, jurisdictions of recent times has been the Malaysian island of Labuan, which continues to go from strength to strength, despite the testing global economic conditions.

Labuan, situated a few miles off the northern coast of Borneo in Malaysia and tiny in size, is one of the newer additions to the list of the world’s offshore jurisdictions, but it is already attracting significant interest from businesses.

In 2010, Labuan maintained positive growth across all key business sectors, but particularly banking, leasing and insurance, despite the more challenging global environment, and new measures have been implemented recently to improve the flexibility and business-friendliness of its tax and legal framework, becoming effective as of 2009 and beyond.

Labuan has succeeded in not only attracting conventional business interest from all over the globe, it has its greatest potential in catering the growing demand for Islamic finance products.  Good or bad this is what appears to be in the future.

Labuan can now be said to be the new financial force to reckoned with, having built up a favorable reputation with international investors in a short space of time. Even so, they don’t appear content to rest on their laurels, and they’ve targeted several key strategies to advance Labuan as an international business and financial center of choice in the region. “In the pipeline are a number of initiatives under the Malaysian Financial Sector Blueprint, which aims to provide a holistic approach for the development of the Malaysian financial sector for the next 10 years“. Despite the gloomy world economic outlook and ongoing moves to force more regulation on offshore financial centers, with Malaysia’s backing it would seem that the sun is shining on Labuan’s future.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Greek Reaction Demonstrates Fragility of EU

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European Unity and Global Markets
Reaction by Greek Prime Minister

Greek Prime Minister George Papandreou seemingly took the world back to square one. Papandreou will have a referendum to approve the latest, second, bailout for his country.  The agreement signed last week and agreed to by Greece is now up for a referendum.

With that, global markets crumbled. In early trading here the S&P, DAX and FTSE are off and dropping. Bank stocks are leading the way with 10% drops not at all uncommon as the Greek vote calls into question whether or not the entire deal struck last week will need to be renegotiated. What is surprising is that the referendum does not seem to have a date.

Some believe that “The Papandreou decision is kinda smart, who is he to unilaterally commit his country to financial servitude for the next decade or so without the backing of Parliament?”  Considering that his government did the bulk of the spending it is a political calculation to refuse to now comply with the Maastricht Treaty which forced other member nations to bail Greece out, again.

The net result is an unexpected sell-off, that could last – ending a rather positive run of data regarding the U.S. economy.

It is time to buy during smaller market growth and then selling each time fear rises.  The super committee meets this month – prepare for another period of volatility.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Habits and ruts encourage old age – Edith Wharton

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… the deathly process of doing the same thing in the same way at the same hour day after day, first from carelessness, then from inclination, at last from cowardice or inertia. Luckily the inconsequent life is not the only alternative; for caprice is as ruinous as routine. Habit is necessary; it is the habit of having habits, of turning a trail into a rut, that must be incessantly fought against if one is to remain alive.

                                         — Edith Wharton

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com