April 30, 2014
Retail is for idiots.
Only chumps pay the going rate.
There's a price for morons but then there's a secret price for those of us in the biz.
I know it says "expired" but, trust me, I got a way of extending that, but it's gonna cost you and you gotta keep yer mouth shut.
Just make the check out to "Cash" because I'm Joe Cash and I can't have this deal on the books.
And so it goes. I'm sure you even have some of your own bits to add. A few of the above may have even struck you as something you fell for. Well, read on because today's BrokeAndBroker Blog involves an eye-poppin', jaw-droppin' bit of municipal bond sales legerdemain.
Gabriel N. Smith entered the securities industry in 1988, and during the times relevant to this matter, he was registered with Financial Industry Regulatory Authority ("FINRA") member firm MML Investors Services, LLC ("MML") from March 23, 2010, through October 19, 2012. MML filed a Uniform Termination Notice for Securities Industry Registration ("Form U5") asserting that he was terminated ''in connection with the violation of firm's policy pertaining to the solicitation of loans from customers."
Hide And Seek
Notwithstanding numerous attempts by FINRA to obtain Smith's cooperation during its investigation of the circumstances of his termination, he allegedly failed to respond in violation of FINRA Rules 8210 and 2010.
On December 10, 2013, the FINRA Department of Enforcement filed a Complaint against Smith alleging that he had converted customer funds to his own use in violation of FINRA Rules 2150 and 2010. FINRA Department Of Enforcement, Complainant, v. Gabriel N. Smith, Respondent (Office of Hearing Officers, Default Decision, Disciplinary Proceeding No. 2012034568401, April 23, 2014). As alleged in the Complaint:
5. On or about June 9, 2011, while associated with MML Investors Services, LLC, Smith presented TS, a customer of MML Investors Services, LLC, but not a brokerage client of Smith, with an opportunity to invest in a short-term municipal bond that would guarantee a 15% return.
6. Based on Smith's representations, TS gave Smith a personal check made payable to "Gabriel Smith" in the amount of $20,000.
7. The check was endorsed by "Gabriel N. Smith."
8. On or about September 22, 2011, Smith contacted TS and offered to extend the life of TS's initial municipal bond investment, and add a bonus to any subsequent investments, in addition to the 15% interest.
9. Based on Smith's representations, TS gave Smith another personal check made payable to "Gabriel Smith" in the amount of $30,000.
10. The check was endorsed by "Gabriel N. Smith."
11. On or about December 1, 2011 and January 24, 2012, TS gave Smith two more personal checks, each made payable to ''Gabriel Smith", in the amounts of $100,000 and $50,000, respectively.
12. The $50,000 check was endorsed by "Gabriel N. Smith."
13. The amount of these checks totaled $200,000.
14. On or about October 22, 2012, Smith gave TS a personal check in the amount of $282,273.51, with a memo written notation "Payment for Return of Money."
15. Smith's check was returned by the bank with the notation "Return Reason -D - Closed Account."
16. Instead of investing the funds, Smith deposited the aforementioned checks into a bank account under his control and thereby converted the funds to his personal use without the customer's knowledge.
17. To date, Smith has failed to repay TS any of the funds and TS has not received any return on his investments.
From the FINRA Complaint, Pages 2 to 3
FINRA's Office of Hearing Officers Default Decision imposed upon Smith a Bar from associating with any FINRA member firm in any capacity and he is ordered to pay $200,000 in restitution with interest to the customer.
Bill Singer's Comment
Apparently TS was a customer of MML but not a client of Smith's. I'm not exactly certain as to why FINRA noted that distinction, but, since the self-regulatory organization brought the issue to our attention, I wish it had explained why this fact was notable.
Also, I wonder whether anyone at FINRA was aware of the widely accepted meaning of the two letters "TS," and, as such, whether someone at the regulator had a commendable sense of humor when it came to endowing this unfortunate customer with that two-letter handle of confidentiality. Yeah, I know, the customer's name was probably something like Tom Smith and they brainstormed at FINRA and agreed to conceal his identity behind "TS." Still -- it's probably not the best of all two-letter choice. I mean, gee, imagine if Bill Singer was the customer!
Those musings aside, in June 2011, customer TS apparently fell for Smith's pitch that there was actually a short-term muni paying a guaranteed 15% return. Ah, what a wonderful opportunity! Something like five to seven times the going rate? Sort of like a load of BS for TS, right?
Then we learn that TS wrote out a $20,000 personal check payable to "Gabriel Smith." Not to MML. Not to some bona fide brokerage firm. But to an individual who was apparently NOT TS's stockbroker but merely someone who worked at MML.
Perhaps sensing that there was more water to be brought out from this well, in September 2011, Smith drops another bucket down the hole. Now he offers to extend the life of the June 2011 muni bond and sweeten the deal with some oddball "bonus" that somehow was going to be applied to potential subsequent investments. And the cost of this lovely extension and charming bonus was a mere $30,000 -- kindly make that check payable to "Gabriel Smith." As to how you extend the life of a municipal bond that has a date certain for its maturity is beyond me but why dawdle over such silly facts. We got a bonus in play here.
A few months later, in December 2011 and January 2012, TS writes out two more checks payable to "Gabriel Smith" in the amounts of $100,000 and $50,000. All in all, TS tendered $200,000 in checks to Smith for all these investments. This tortured series of transactions comes to a welcome end in October 2012, when Smith gives TS a $282,273.51 check denoted as "Payment for Return of Money." Okay, so go figure -- TS winds up making $82,273.51 on a $200,000 investment and Smith actually comes through. My faith in humanity is restored.
Ummm, let's hold off on that faith in humanity thing.
Turns out that Smith's check bounces because he cut it against a closed account. Also turns out that Smith simply converted the funds for his own use and never paid back a cent to his victim. I can only imagine how and when Smith will undertake the ordered restitution. Too bad he's been barred from the biz. That might put a crimp in his earning power and the speed with which the defrauded customer is made whole. Watta they say? Oh, yeah: TS.
Just a little advice to all you wannabe investors who find some guy at a brokerage firm who's not your stockbroker of record and who touts you about a guaranteed investment paying way, way, way above market rates; and this helpful fellow insists that you make the payments out to him personally. Think about the saga of TS. Think about the meaning of TS. Think about your hard-earned bucks in the hands of a scam artist and how tough it's gonna be to get repaid. Remember that if you fall for BS you may wind up in TS.
Bill Singer's SIDE BAR Warnings About BS On Wall Street That Can Turn Into TS For Investors:
- If it's too good to be true, it's -- duh -- too good to be true;
- Prevailing market rates are not for suckers;
- Never, ever make a check for the purchase of securities payable to an individual;
- Generally, it's best to cash out of an investment when its term expires or reaches maturity, and, thereafter, you can always use the proceeds to invest in any bonus or additional investment product.