March 2, 2019
A stockbroker left his brokerage firm and started up his own registered investment advisor. In an excess of woefully misguided customer service, the broker telephoned his former firm's service center pretending to be some of his former customers (who were opening accounts at his new shop). To be fair to the stockbroker, he may have been thinking that he was doing the right thing for his customers, but, you know, maybe he should have given it a bit more thought. Perhaps he thought it was just one call. Perhaps he figured that one call would save each customer a lot of aggravation.
The problem with insider trading is that it is largely a technical offense. There has to be something concrete enough to be deemed "factual" information before anyone can illegally trade on it. But much of the information we rely on every day is not concretely factual. My "sense" that things aren't going as planned -- gleaned around the water cooler from my friend's worry over sales numbers, or my other friend's frustration over not being able to ship backed-up orders -- is quite enough for me think the stock will take a hit. So long as I have a good sense of the direction, I don't need to know anything about the magnitude. I certainly don't need to see the 10-Q to make a profitable trade. Decades of research have demonstrated that corporate insiders, even when complying with blackout periods, outperform the market by about 10%.
Wall Street is legendary for sending messages. You try to bury your competition. You try to crush the other side of the deal. And when it comes to employment relations on the Street, it's more of that dog-eat-dog world. No holds barred. Two walk in but one walks out. Cut their heads off and hang 'em on a pole. The thing is, however, it only takes one sucker punch to make you look silly. If yer gonna send a message, ya better make sure it don't get returned to sender!
Today's featured FINRA regulatory settlement was prompted by a complaint against a stockbroker's "dealings with a vulnerable individual." Who sent that complaint? We're not told. What we do know is that the stockbroker violated FINRA's rules by failing to inform his employer UBS Financial Services Inc. about his roles as a trustee and an attorney-in-fact. Also, various away account documents indicate that the stockbroker was an "attorney" or retired or unemployed. Not stated in the AWC was whether FINRA determined that the accounts at issue were profitable or sustained losses. In the end, there are more unanswered questions than compelling conclusions in this AWC.
In today's featured FINRA arbitration, we have Charles Schwab winning its case against two public customers. Winning as in one customer is dead and the other is nowhere to be found. Hey, at least the lawyers get paid. Making matters worse, the lawsuit revolves around the much-maligned VelocityShares Daily Inverse VIX Short-Term Exchange Traded Note. Wow, that's a mouthful. Inverse as in what goes down, theoretically goes up. Theoretically as in, holy crap, are you going to be in for a nasty surprise. Exchange Traded Note as in ETN as in, whoa, that's not the same as an ETF, is it?