One of the things that I remember about early 2012 was the number of calls that I was getting asking my legal opinion about any number of deals whereby some group or individual purportedly had purchased thousands of shares before the Initial Public Offering of Facebook. Some callers told me about being approached by aggregators of pre-IPO Facebook shares who were supposedly putting together syndicates for investors seeking to get in on the opportunity. Then there were the deals involving some "big shot" who promised investors an "inside track" and participation in a piece of a massive allocation of thousands of shares of Facebook. Why was this purportedly well-connected fellow offering this opportunity, which, frankly, meant that he was giving up his shot at retaining all the pre-IPO shares for himself and making a killing? Well, the answer was simple: The guy organizing the syndicate was a great humanitarian. Yeah, lots of those folks running around.
After some three decades on the Street, I was skeptical -- highly skeptical -- of what struck me as too-good-to-be-true offers of pre-IPO Facebook shares. Yeah, I heard it all: they were restricted shares that would be piggy-backed on the offering; they were unrestricted Rule 144 shares; they were special shares sold to an offshore, early investor; someone was a major investor at a small broker-dealer and was being given that firm's entire allocation; and it went on and on and on. I warned as many investors as I could to run as far away and as fast as they could from this nonsense and to simply try and buy shares in the secondary if they were locked out of the pre-market.
As it turned out, my advice was golden because virtually all of the folks who participated in these pre-IPO deals (maybe scams is more appropriate) paid nearly $40-plus a share. On May 18, 2012, Facebook launched at $38 a share. Three months later, the supposed can't-lose IPO was not in the stratosphere but somewhere in a stinky sewer at $20 a share. Frankly, if you liked Facebook at $40, you were going to looooooove it at $20, right? All of which prompted lots of lawsuits and recriminations. Of course, patience is often a virtue and for those who lived with the early disappointment, they now own shares valued around $120. Unfortunately, as recent federal lawsuits and prosecutions show, some of those pre-IPO investors own nothing beyond a good fleecing by Facebook fraudsters. READ
Wrap fees became all the rage for those arguing that there had to be a better way to invest than via the old broker-dealer model, which relied upon transaction-based commissions. With a wrap fee, in theory, investors pay a percentage of their assets under management ("AUM") instead of commissions on each trade, and all your investing is covered under what looks like a flat fee. The thing about using the phrase "in theory," is that it tends to underscore that "in reality" everything doesn't run according to plan. READ
Few things are more apt to drive online traffic than dogs and babies. The Federal Bureau of Investigation recently posted a story and video about the use of Wally and Giovanni, two English Labrador Retrievers now designated as "crisis response canines," in a pilot program in the Office for Victim Assistance. The two Labs recently gave comfort during hospital and family assistance center visits.after the horrific attacks in San Bernardino and Dallas. Watch and READ
On Wall Street, we got some hardcore con artists trying to steal the meager life savings of folks who are struggling to just get by. Supposedly, there are thousands and thousands of men and women who go to work each day at various federal, state, and self regulatory organizations and the main focus of all these Wall Street cops is to ferret out the crooks and protect the investing public. Or so they would like us to think and believe. In reality, most of the men and women regulating the securities industry are dedicated and hardworking. Unfortunately, the politics of regulation frequently trumps the serious business of detection and deterrence -- which results in too many regulators engaged in make-work, spending too much time mingling at industry junkets, and otherwise diverted by a lack of meaningful triage. Consider a recent purported FINRA regulatory case involving, of all things, some quirky attempt to purchase limited concert tickets. And this was a regulatory priority on what planet in our regulatory solar system? READ
Death or Divorce: No . . . it's not the only choice for unhappily married couples but it sure as hell are a couple of things that can have unintended consequences on a family's finances. As is often the case, a husband and wife often open brokerage and bank accounts in joint names and then each partner may purchase individual insurance policies, annuities, and the like. Typically, the longer the marriage, the more expansive the various provisions for retirement and survivorship become. Unfortunately, marriages don't always go the distance. Unfortunately, ex-spouses don't always pay attention to unraveling the many connections that they built between them. Following divorce, ex-husbands and ex-wives may forget to delete the former spouse from accounts and policies. Following remarriage, husbands and wives may forget to add the new spouse to accounts and policies. Once death enters the pictures, it's those forgotten things that rear their ugly heads and cause havoc. Consider a recent FINRA arbitration in which a deceased's estate sues Morgan Stanley and Sun America over what should or should not have happened after the dissolution of the deceased's marriage. READ
Do I Need to Notify the DOL About My RIA's Reliance on the Best Interest Contract Exemption? By Max Schatzow, Attorney, Stark & Stark
Recently, lawyer Max Schatzow was asked whether or not a client's Registered Investment Advisor ("RIA") had to send an email notice to the Department of Labor ("DOL") noting his firm's reliance on the Best Interest Contract Exemption provided under DOL's Conflict of Interest Final Rule (the "Rule"). Such notice is required from certain RIAs but as to which and when is not always clear under the Rule. Many RIAs are unsure as to what parts of the Rule they are required to follow. On July 11, 2016, DOL made a very minor revision to the Rule but the change did little to dispel the confusion. Read Guest Blogger Max Schatzow's analysis of the availability of the exemption and the considerations attendant to potential conflicts of interest under the Rule.