[In]Securities Guest Blog: Singin' the Varsity Blues, Part 2: Whose Intentions Are Good by Aegis Frumento

October 3, 2019

Singin' the Varsity Blues, Part 2: Whose Intentions Are Good

Lenin said that it was the Russian radical ideologist N.G. Chernyshevsky who turned him into a confirmed revolutionary. One of Chernyshevsky's heros summarized his ideology thus:

Yes, I will always do what I want. I will never sacrifice anything, not even a whim, for the sake of something I do not desire. What I want, with all my heart, is to make people happy. In this lies my happiness. Mine? Can you hear that, you, in your underground hole?

In many ways, all of Fyodor Dostoevsky's writings were a reaction to that sentiment. His Notes from Underground answers almost directly that, yes, he in his underground hole did hear Chermyshevsky, and after hearing him he declared from underground, "I am a sick man . . . . I am a wicked man." Dostoevsky saw the consequences of saying, as Cheyshevsky said, as Ivan said in The Brothers Karamazov, that, if the goal is noble, "all is permitted." When Lenin and his successors put that idea into practice, untold millions died. J.R.R. Tolkien came to the same conclusion. Nothing is evil at the start. The temptation of the Ring is the desire to use it for good. That's how it always starts, but it seldom ends there.

We start the week with the drama of a President shaking down another country's leader to get dirt on his opponent. In his mind, his intentions are good. Intentions always seem to be good. But I don't really want to talk about him and his intentions. The good intention at the heart of today perfidy is the desire to help one's kids.

Yesterday, Chris Collins resigned his seat in Congress and pled guilty to insider trading.  Collins, the first congressman to support Trump back in 2016, became aware that a drug company he was involved with was about to be denied some FDA approval, and tipped his son to sell his stake so as to avoid a $750,000 loss. https://www.npr.org/2019/09/30/765762967/gop-rep-chris-collins-resigns-ahead-of-reported-guilty-plea-on-insider-trading.

Wilkie Farr's disgraced former co-chairman Gordon Caplan would understand it. He was begging the judge not to throw him in jail for paying $75,000 to have his daughter's ACT scores upgraded. He inundated the court with 170 pages of testimonials from fellow lawyers who proclaimed, as one wrote, to be "genuinely shocked" upon hearing what Caplan did. https://www.law.com/newyorklawjournal/2019/09/27/i-was-genuinely-shocked-lawyers-at-willkie-and-other-firms-urge-leniency-for-caplan/. Genuinely shocked -- not the feigned outrage we lawyers usually portray. Well, good luck to him. Three fellow Varsity Blues singers have already been given jail time: Felicity Huffman got two weeks, but two others got 4 months each. So it doesn't look good, especially since judges don't tend to go easy on lawyers who are caught at being hypocrites.

What's crazy about all this is not the intentions -- let's take it for granted that all their intentions were good. Who, after all, doesn't want the best for their kids? The problem with all of them is that they couldn't afford to do it right. Not like hedge fund magnate D.E. Shaw. Shaw's kids all went to Yale, but Shaw didn't bribe any test-takers or coaches to do it. He did it the old fashioned way. He paid to have his kids specially tutored for all subjects and all tests, to have the most enriching enrichment experiences, to have staff enough to fill his 33,000 square foot mansion and his Upper West Side Apartment, to assure that, to the best of his ability, nothing bad ever happened to them. And he also hedged his bets by having his private foundation donate $1 million each year since 2011 to each of Harvard, Yale, Princeton and Stanford, and $500,000 to each of Columbia and Brown. http://nymag.com/intelligencer/2019/09/david-e-shaw-college-donations.html.

You can do that when you're worth over $7 billion. Alas for Caplan and the other Varsity Blues parents, while they were surely wealthy by most everyone's standards, they weren't in Shaw's league.  There is always a bigger fish, and to keep up with the Shaws they felt they needed to bend the rules. The same goes for Collins, for whom $750,000 is a lot of money. After all, it was for the kids.

So this is where liberal elites make common cause with arch-Trumpistas. Political leanings have nothing to do with it. All of them, when it came to their kids, resorted to crime with equal alacrity. None of them, when the cause was sufficiently noble, let little things like laws and norms stand in their way.

So what moral standing do any of them have to criticize President Trump for asking "a favor though" in return for military aid? When they decided that it was ok for them to commit crimes for the good of their own kids -- others' kids (the non-cheating applicants) be damned -- they did in their small way what the Donald has always done in his bigly way. They flock together, whether they realize it or not.

That is always the problem when we set norms aside for what we want. It doesn't matter that what we want may be the happiness of others, even that of our own kids. One can argue that we really don't know what would make our kids happy anyway. Most of the time we just project on our kids whatever we think would make us happy, as if we even know that.  We end up making our kids and ourselves miserable in the process. But no matter -- when we disregard laws and norms to do what we want we turn to the dark side no matter what we tell ourselves to justify it. The hell of it is, we all do it. We are all poor souls whose intentions are good, and we inevitably end up misunderstood.


Aegis J. Frumento
Stern Tannenbaum & Bell
Co-Head, Financial Markets Practice

380 Lexington Avenue
New York, NY 10168

Aegis Frumento is a partner of Stern Tannenbaum & Bell, and co-heads the firm's Financial Markets Practice. Mr. Frumento represents persons and businesses in all aspects of commercial, corporate and securities matters and dispute resolution (including trials and arbitrations); SEC and FINRA regulated firms and persons on regulatory compliance issues and in SEC and FINRA enforcement investigations and proceedings; and senior executives of public corporations personal securities law and corporate governance matters.  Mr. Frumento also represents clients in forming and registering broker-dealers and registered investment advisers, in developing compliance policies, procedures and controls, and in adopting proper disclosure documents. Those now include industry professionals looking to adapt blockchain technologies to finance and financial market enterprises.

Prior to joining the firm, Mr. Frumento was a managing director of Citigroup and Morgan Stanley, a partner and the head of the financial markets group of Duane Morris LLP, and the managing partner of Singer Frumento LLP.

He graduated from Harvard College in 1976 and New York University School of Law in 1979. Mr. Frumento is a frequent author and speaker on securities law issues, and is often quoted in the media on current securities law developments.

NOTE: The views expressed in this Guest Blog are those of the author and do not necessarily reflect those of BrokeAndBroker.com Blog. 

FINRA Fines UBS Financial Services Inc. $2 Million for Continued Failures Relating to Short Positions in Municipal Securities / Firm Inaccurately Represented the Tax Status of Thousands of Interest Payments to Customers; Restitution Ordered (FINRA Release)

AG James Imposes $12.5 Million Penalty On Brokerage Firms For Martin Act Violations (NYAG Release)

New Jersey Court Sustains Banking/Insurance Commissioners Penalties. Marlene Caride, Commissioner, New Jersey Department of Banking and Insurance, Petitioner/Respondent, v. Randolph A. Fisher, Jr., Kevin G. Madden, and Regal Financial Group, LLC, Respondents/Appellants (Opinion, Superior Court of New Jersey/Appellate Division)

[In]Securities Guest Blog: Singin' the Varsity Blues, Part 2: Whose Intentions Are Good  by Aegis Frumento (BrokeAndBroker.com Blog)

SEC Obtains Final Judgment Against Investment Banker Charged in Insider Trading Scheme (SEC Release)

SEC Obtains Final Judgments Against Lek Securities and CEO in Layering, Manipulation Case Litigation Continues Against Ukraine-Based Firm, Individuals (SEC Release)

Defendants Charged in Fraudulent ICO to Pay Nearly $7 Million (SEC Release)

Dark Web Vendors Plead Guilty to Cryptocurrency Money Laundering Conspiracy (DOJ Release)

'The IPO process has devolved,' tech investor Bill Gurley says as he leads a direct listing movement (CNBC.com by Lauren Feiner)

Market Regulation Enforcement: Ensuring Market Integrity (FINRA Unscripted)

FINRA 2019 Industry Snapshot