SEC Settles Infomercial Case Against BetterTrades

October 20, 2011

Perhaps you've see the BetterTrades television infomercial, which discusses how to trade options?  Depending on my mood, I may watch that piece of cinema verite or maybe switch over to that lady making pizzas and omelets in that electric cooking thing or to that annoying guy with that vegetable chopper.  Why they call these spots info-mericals is beyond me because there's truly little, if any, information presented, but, hey, such are the mysteries of modern day life.

Okay, so, as I was saying, I have found myself watching those BetterTrades infomercials during the past few years.  Why do I continue to watch the same infomercial?  Good question.  I'm hoping for a surprise ending.  I'm a fan of film and trying to hone in on the the production values and the nuances of the spokespersons' performance.

Then there's the wow factor - some of these infomercials have huge international stars serving as spokespersons.  How do I know that?  Well, c'mon, they tell you that, right on the television screen.  International star of film and stage Hubert Fuffle is a paid spokesperson for . . .  And who can overlook the nostalgia of some aging star resplendent with dyed hair, new face-lift, and barely disguised paunch urging us to purchase some insurance, an exercise machine that looks like a Middle Ages torture device, a fabric tube that you squeeze into like a human sausage and it makes you look five sizes smaller, or some lotion that if put on some part of your body does something that no other lotion can do and a Swiss laboratory has confirmed it all!

Jimmy Johnson

Come to think of it, as best I recall, former Dallas Cowboys coach Jimmy Johnson appeared in some of the BetterTrades infomercials a few years ago.  That really impressed me. I'm a football fan. I also trade options.  In football, you have a quarterback option play in which the quarterback has the option of passing or running the ball - there's also a halfback option in which the halfback has the same dynamic range of choices to either pass or run the ball except that the halfback isn't the quarterback.

So . . . you got football, you got option plays, and you got former NFL coach Jimmy Johnson, who probably drew up a number of option plays during his career.  And let's not forget that the Center in football straddles the ball before hiking it - and you can purchase Straddles as part of a more sophisticated options strategy.  Then, there's the famous spread formation in football and, you got it, you can purchase Spreads as part of an options trade. 

Why, you'd have to be an idiot, an idiot, I say, to not see the obvious convergence between football and stock options.  Clearly, having Jimmy Johnson appear in its ads was a stroke of genius for the BetterTrades folks. 

Television Zapper Digression

If you're a guy (hey, guess what? I qualify for that!!), you likely have those moments late at night when there's nothing on television - nothing as in on all 1,000 cable channels. At that point, you tend to start watching something like the BetterTrades infomercial.

Why would I watch repeat airings of the same BetterTrades infomercial?  Ahhh, now you're bringing up that great gender-divide issue. 

 

Guys (of which I'm one) refuse to waste valuable television viewing time by watching commercials or the lull in action between sports plays.  We guys are genetically wired to start channel surfing the minute we see a commercial or any minor lag in the space-time continuum - sometimes referred to as the Two Minute Warning or the Coach's Visit to the Mound. This DNA instinct compels us to change the channel and watch an old John Wayne movie (don't start in with me about the Duke) or the film noir classic Rudy (I think I've seen that several hundred times already) or an infomercial (like, you know, BetterTrades).  And, no, watching a run-of-the-mill television commercial is not the same thing as watching a wondrous thirty minute infomercial. So, don't even go there.

Which brings me to the other side of the gender divide where a woman (as in my wife) looks at the television, looks at the guy (me) , looks back at the television, looks back at the guy, and then asks, "What the hell is that crap you're watching?"  All of which gets the guy very defensive.

You see, it's a rule, written or otherwise, that guys are in charge of the mighty television zapper. We control the horizontal. We control the vertical. Of course, the gals don't always abide by this etched-in-stone television convention, which sometimes leads to that great tug of war between a guy and a gal over who controls the television zapper. Should the gal wrest control of the almighty zapper from the clutching hands of the guy, that sometimes results in changing the television channel to a re-run of some animal show with puppies or one of those series with the couple arguing over whether they should purchase a house with something called a Jack-And-Jill bathroom.

Okay, so, I digress. Big deal, it's my blog. If I wanna digress, that's my call. You don't like it? Go write your own blog.

SEC Complaint

Anyway, where was I???

Oh yeah, so remember those BetterTrades infomercials? Well, seems that the Securities and Exchange Commission ("SEC") had a problem with the company. The SEC filed a Complaint against the company and Freddie Rick, its co-founder/president. 

Freddie Rick?  That's the name of the guy who owns BetterTrades?  Maybe if he had changed his name to Frederick Richards he could have avoided popping up on the SEC's radar.  Good thing he came up with the BetterTrades name because I don't think Freddie Rick's Options Program would have had the same cachet.

So, name calling aside, the SEC alleged that starting in 2007 and through at least 2008, certain BetterTrades instructors falsely claimed to be highly successful options traders using the strategies taught by BetterTrades. Then there was the SEC's concern that BetterTrades marketing materials wrongly depicted some instructors as successful, active traders. Finally, the SEC took exception to claims that Mr. Rick had become wealthy through his options trading - as the SEC apparently saw it, he made his bucks mainly from BetterTrades' business and not trading. 

Once the SEC was done taking its shots, it summed it all up in more legal terms. The federal securities regulator alleged that the defendants acted recklessly in making these claims without verifying their accuracy, despite red flags that the claims were false. The Complaint alleged that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5.

Settlement

On October 18, 2011, the SEC filed a settled civil injunctive action against Long Term-Short Term Inc., d/b/a BetterTrades, and Freddie Rick, the Company's co-founder and president. Securities and Exchange Commission v. Long Term-Short Term, Inc. and Freddie Rick(Civil Action No. 1:11-cv-1127, EDVa / Litigation Release No. 22133 / October 19, 2011). 

Without admitting or denying the allegations in the Complaint, defendants BetterTrades and Rick agreed to pay, respectively, $750,000 and $150,000 in civil penalties. Further, the defendants consented to injunctions from future violations of federal securities laws and agreed to continue enforcing internal compliance guidelines designed to prevent future violations.

Voluntary Remediation

Based upon the SEC's commentary on the settlement, it appears that the regulator was favorably impressed by what it described as "the defendants' voluntary remediation efforts." In more plain-spoken terms, the SEC liked the fact that the defendants cleaned up their own mess.  As to the specifics of the house cleaning, the SEC noted that BestTrades had:

retained counsel to review how it promoted and sold its classes, products and services, and it adopted policies that set forth standards of behavior expected from instructors, including mandatory instructor training on Company policies and interpretive guidelines, collection of instructor trading records, and vetting of any instructor claims of trading success against trading records. The Company also instituted policies and detailed guidelines regarding, among other things, review and revision of marketing materials, and required student claims of trading success to be vetted against trading records. The Company also took disciplinary actions against instructors who failed to adhere to Company policies.

Bill Singer's Comment

Is there nothing sacred?  Can't a guy watch some lousy infomercial in his big, comfy chair without the SEC getting all huffy? 

And another thing - what took so long to get this thing resolved?  I mean, seriously, the SEC is first settling in 2011 a case alleging over-the-top television claims (perish the thought!) from 2007 and 2008? 

You remember all the way back to 2007, don't you?  Lemme see, 2007, wasn't Survivor in Fiji that year? Didn't the classic ABC series Knights of Prosperity debut and embark upon its lengthy run? And who can forget the cutting-edge CW network drama of that year: Pussycat Dolls Present: The Search for the Next Doll.

For a variation on this theme involving Baby Boomers, 1950s and 1960s television theme songs, and further insight to the bizarre workings of Bill Singer's mind, READ: Remembrance of Things Past (BrokeAndBroker Blog, October 27, 2010)