Monthly Archives: December 2011

How could insider information by Hank Paulson be legal?

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Information in this post is from Taken to Task on 12/2/11: http://finance.yahoo.com/blogs/daily-ticker/taken-task-capt-cronyism-hank-paulson-124007702.html

How could Treasury secretary (Hank Paulson) providing insider information to Hedge fund managers be legal?

The story goes that in July 2008, then Treasury Secretary Hank Paulson tipped off a small group of hedge fund managers to the government’s plan to put Fannie Mae and Freddie Mac into conservatorship. When the government did just that in early September 2008, anyone hoping for a bailout of Freddie and Fannie (or just long the GSEs) got wiped out…while anyone short the stock made a boatload.

How could this not be legal? Paulson’s behavior is a dereliction of duty, violation of the public trust and for undermining the American taxpayer he swore to support.

According to the reports Paulson’s meeting and alleged comments did not violate insider trading laws; technically it was legal.  Then what do the insider trading laws protect us against? According to the rules insider trading by sitting members of Congress is wrong and offensive, Paulson’s gift to his hedge fund buddies, where he was CEO prior to becoming Treasury Secretary — is so grotesque and wrong it boggles the mind; more especially considering that Paulson told the press a different story than he told the money managers.

Why are the Justice Department, the SEC or any other federal prosecutor not investigating Paulson’s actions regarding Fannie and Freddie — and why don’t they shed light on his meeting with hedge fund managers.  Or will the SEC once again allow all to pay a small fine and claim no fault?

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Raymond James Poorly Managed Elderly client Contractor

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Raymond James Financial Services over will need to pay fines for poorly supervising a former independent contractor because of how he handled the finances of an elderly Texas man and the estate of his deceased wife.*  The elderly couple portfolio included life insurance and variable annuities. It is seldom best to switch from annuities to other investments and back.

The former employee had apparently switched the couple out of their municipal bond portfolio entirely, and put them into high-commission variable annuities and life insurance policies. Without their knowledge, he then moved them from one variable annuity to another, costing the couple large surrender fees and commissions. He also orchestrated loans against the insurance policy and used the proceeds to buy other annuities.

Raymond James previously said that the couple actually turned an $800,000 profit on their investments while the former employee remained at the broker-dealer. The couple willingly followed the employee when he changed jobs and joined LPL in 2006, and brought their accounts with them. Subsequent trading at LPL incurred the losses at the heart of the complaint, the company said. The couple has settled damages with LPL before the arbitration with Raymond James.

“Raymond James continues to believe that the award in this matter is a miscarriage of justice,” according to an email statement from Robert M. Rudnicki, the firm’s vice president and director of litigation. “Raymond James believes the panel erroneously held Raymond James responsible for those losses.”

*Material for this post is mainly from “Appeal Denied: Raymond James Must Pay $1.7 Million to Elderly Investor” by Donna Mitchell, Financial Planning, Dec. 1, 2011

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com