Securities Industry Commentator by Bill Singer Esq

June 9, 2020






Prepping portfolios for next market storm? Not just gold and govvies (Bloomberg by Saikat Chatterjee and Dhara Ranasinghe)
https://www.reuters.com/article/us-health-coronavirus-investments-analys/prepping-portfolios-for-next-market-storm-not-just-gold-and-govvies-idUSKBN23G0KL
For as long as I can remember, in response to a nuclear attack, you ducked under your desk, formed yourself into a turtle-like shape, and prayed that after the nuclear winter ended your 60:40 equities to bond portfolio allocation would weather the end of the world. As Bloomberg's Chatterjee and Ranasinghe report, that end-of-the-world model may no longer be the fashion: 

During the 2008 global financial crisis for instance, a portfolio comprising equity and government bonds in a 60:40 ratio would have lost 2%. But in March-April this year, a similar portfolio lost 13%, according to investment advisory firm BCA Research.

The reason bonds find it harder to move inversely to equities is that German and U.S. 10-year yields are 500 bps and 350 bps lower than they were on the eve of the 2008 crisis.

"A stronger cross-asset correlation is the worst nightmare for any portfolio manager, and this has been a defining feature of this crisis, prompting the search for alternative assets," said Dhaval Joshi, chief European strategist at BCA.

Speculative Fervor in U.S. Stocks Surges to 'Stunning' Levels (Bloomberg by Cormac Mullen)
https://www.bloomberg.com/news/articles/2020-06-09/speculative-fervor-in-u-s-stocks-surges-to-stunning-levels
Few market sentiment counter-indicators are more reliable than doing the opposite of retail investors, who tend to pile in after highs but stubbornly hold on until selling out at the lows -- and, making matters worse, they get slammed with margin calls that tend to gut their savings. As Bloomberg's Mullen reports in part:

At the heart of the speculative activity are smaller investors, according to Sundial. Small trader call buying made up more than 50% of total volume last week, the highest since 2000, it said.

Past instances when bullish small trader positions made up 45% or more of volume preceded a median loss for U.S. stocks of about 3% in two months time and 15% in a year, according to the note.

Day Traders Are a New Wrinkle in the Negative Oil Price Mystery (Bloomberg Businessweek by Matthew Leising)
https://www.bloomberg.com/news/articles/2020-06-08/are-day-traders-a-possible-cause-for-oil-prices-going-negative?srnd=premium
Does a tree make a sound if it falls in the forest but no one hears it? How do you close out a long position of securities or futures if you have to pay someone in order to liquidate it, and why wouldn't folks be lining up to buy your negative asset if you're going to pay them to do so? What happens when less-than-Zero turns out to be more than you bargained for? As Bloomberg's Leising reports in part:

[B]en Whitesides was trading on ETrade from his home near Salt Lake City when he bought three 500 barrel oil contracts at an average price of 75 ¢ a barrel, he says. When prices turned negative, he wanted to sell immediately, but ETrade's system froze. Whitesides says he couldn't buy or sell, and was completely shut out. He estimated the most he could lose was about $1,500. Two days later, ETrade withdrew $57,000 from his account. "Their system had no ability to exit those contracts," Whitesides says. "I was at the mercy of the market with no ability to get in or out based on ETrade's system."

https://www.sec.gov/litigation/litreleases/2020/lr24830.htm
In a Complaint filed in the United States District Court for the Northern District of Ohio
https://www.sec.gov/litigation/complaints/2020/comp24773.pdf, the SEC alleged that after having instituted a settled order against Brandon E. Copeland in July 2019 for, among other things, making false and misleading statements to investors; and after the federal regulator barred him from the securities industry, Copeland immediately violated the SEC's Order. The Complaint alleged that Copeland created, and associated with, E.B. & Copeland Capital, Inc. and failed to pay the ordered penalty. Further, the Complaint alleged that Copeland and Copeland Capital fraudulently promoted a new private fund on a public website via material misstatements and omissions regarding the status and success of the fund, as well as Copeland's industry experience and disciplinary history with the SEC. As alleged in part in the SEC Release, a final Consent Judgment was entered by the Court:

against Copeland enforces the SEC's July 2019 order against him and orders him to comply with all relief provided for in that order, permanently restrains and enjoins him from violations of the antifraud provisions of Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and orders him to pay an additional civil penalty in the amount of $192,768. The final judgment against Copeland Capital permanently restrains and enjoins it from violations of the antifraud provisions of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.

https://www.justice.gov/usao-ndga/pr/california-man-who-falsely-claimed-ties-moroccan-royal-family-10-million-dollar-advance
Hassan Ra El, a/k/a Rasheem Harrson Crockett, 45, pled guilty to wire fraud in the United States District Court for the Northern District of Georgia to 13 years and 11 months in prison plus three years of supervised release; and he was ordered to pay $5,510,001 in restitution.  Previously, Crockett was convicted of two counts of felony theft by deception for defrauding loan clients in 2006. After his convictions in Douglas County, El formerly changed his name from Rasheem Harrson Crockett to Hassan Ra El. As alleged in part in the DOJ Release:

[H]assan Ra El operated a scheme to defraud business owners across the country who were seeking loans. El claimed that he was a wealthy investor and a member of the Moroccan Royal Family. El fraudulently claimed that he had access to Moroccan Royal Family funds that would be used to fund business loans. El created fraudulent documentation showing that insurance companies were offering default insurance policies on the loans. El convinced prospective loan applicants that they had to pay default insurance fees, typically 10% of the loan amount, before the loans would fund. When the loans failed to fund, El used fees from later loan applicants to partially refund fees from previous loan applicants.

In furtherance of the scheme, El created fraudulent bank statements purportedly showing that he or companies that he controlled had millions in bank accounts. El also created fraudulent email accounts and correspondence purportedly from insurance executives stating that loans had been approved. El used fees from loan applicants to fund his lifestyle, pay his living expenses, and to rent high-end automobiles, including a Ferrari, Range Rover and Lamborghini. El fraudulently induced victims to pay over $10 million dollars in advance fees. Neither El nor his companies funded any of the promised loans and loan applicants lost over $5 million dollars in the fraud scheme.

https://www.cftc.gov/PressRoom/PressReleases/8174-20
The CFTC issued an Order filing chrages against Gain Capital UK Limited (Gain UK) of London, England
https://www.cftc.gov/media/3971/enfgaincapitalorder060820/download, for failing to register as a retail foreign exchange dealer ("RFED") and for supervision violations related to the handling of a customer account managed by an unregistered commodity trading advisor ("CTA"). The CFTC Order requires Gain UK to pay a $250,000 civil monetary penalty, to disgorge $241,671, and to cease and desist from any further violations of the Commodity Exchange Act ("CEA") or CFTC regulations, as charged. As alleged in part in the CFTC Releas:   

[F]rom at least February 6, 2014 to March 8, 2019, Gain UK acted as a counterparty to retail foreign exchange (forex) customers who were located in the United States, without registering as an RFED as required by the CEA and CFTC regulations. Gain UK accepted customers who used U.S. mailing addresses in account applications and provided documents such as lease agreements, utility bills, and health-insurance enrollment letters suggesting that they were located in the United States. Furthermore, one customer informed a Gain UK employee that she was a student at a U.S. university when questioned about her account application and U.S. mailing address. Nevertheless, Gain UK failed to register as an RFED as required.

The order also finds that Gain UK failed to diligently supervise the handling of the account of a retail forex customer who was located in the United States. Specifically, Gain UK failed to detect warning signs of the underlying fraudulent conduct by an unregistered CTA who solicited the retail forex customer to open an account with Gain UK. For example, a Gain UK employee had extensive communications with the unregistered CTA and was aware that the CTA had been rejected from managing accounts with Gain UK and its affiliates because the CTA may have been soliciting managed accounts through social media and a website without registering with the CFTC. Despite the unregistered CTA not being named on any of the account documents, the CTA had extensive communications with Gain UK's employee about creating the account, directed the trading in it, and refunded commissions to the customer to reimburse significant trading losses. Due to the unregistered CTA's fraudulent conduct, the customer suffered approximately $280,000 in losses while Gain UK earned $241,671.  

In a FINRA Arbitraton Statement of Claim filed in January 2019, associated person Claimant DeSimone alleged breach of employment contract. Initially, Claimant DeSimone sought $1.750 million in compensatory damages, a declaratory judgment, specific performance, interest, fees, and costs; however, at the close of the hearing, Claimant did not request a declaratory judgment and specific performance.

FINRA member firm Respondent Mirae Asset Securities generally denied the allegations and asserted various affirmatvie defenses. 

The FINRA Arbitration Decision states in part that:

On May 21, 2020, the parties jointly submitted correspondence stipulating that the monetary amount of the health benefits for the remaining term of Claimant's agreement, if any amount is to be awarded, is $55,931.33, comprised of $8,930.45 in monthly health benefits from November 1, 2018 to March 31, 2019 and $47,000.88 in monthly health benefits from April 1 2019 through August 22, 2021.

By a Majority Decision of the Presiding Chair/Public Arbitrator and the Non-Public Arbitrator,, the FINRA Arbitration Panel found Respondent Mirae Asset Securities liable and ordered the firm to pay to Claimant DeSimone $300,000 in compensatory damages; $55,931.33 in monthly health beneftis, andd $11,000 for Claimant's 401K plan. 

One of the two public arbitrators filed a Dissenting Arbitrator's Report:

Based upon my interpretation of Par. 3(c)(ii)(b) of the subject Employment Agreement, I would have awarded Claimant the sum of $849,999.96 (his base salary of $300,000 for the period from November 1, 2018 through August 22, 2021, the balance of the term of the subject Employment Agreement).

Warren Buffett's lack of big moves during sell-off is 'tied to his age,' Ken Fisher says (CNBC Release by Jesse Pound)
https://www.cnbc.com/2020/06/08/warren-buffetts-lack-of-big-moves-during-sell-off-is-tied-to-his-age-ken-fisher-says.html
Back from his brain-fart about women, Ken Fisher now sets his sights upon the eldery! One can only wonder as to the length of Fisher's self-destructive bucket-list but, hey, some folks need to comment about everything and often mull over the consequences later. In Fisher's most recent foray into ducious commentary, CNBD reports in part that:

"The reality of great investors, including my father, is that when they get to a certain age they lose their edge. I'm not suggesting that Mr. Buffett has lost his edge, but I can't find a history of people his age who don't become relatively static in a crisis," Fisher said. "They just become inactive in a crisis . . . My sense of Mr. Buffett is that's what's happening to him. He's moved into a relatively inactive phase tied to his age." 

http://www.brokeandbroker.com/5258/finra-arbitration-default/
In both FINRA's Code of Procedure (which is used for regulation of member firms and their associated persons) and FINRA's Code of Arbitration Procedure (which is used to handle arbitrations in both customer and intra-industry disputes), it is critical for associated persons to ensure that their "last known address" is maintained by FINRA in current form. Around far too many office water coolers on Wall Street where dubious wisdom is dispelled by folks lacking law degrees, the advice has been given that if you get sued by a customer just don't open any certified mail. If you don't open it and you don't sign for it, the water-cooler wisdom goes, they can't nail you. I mean sure, that all sounds good but for the fact that the advice is garbage.