Bill Meekam (not his real name) took early retirement at age 55 after working many years for a large manufacturer. Bill was a sheet metal worker with a high school education. His wife worked at the same company, in a variety of clerical jobs. Both had 401(k) plans at the company.
Bill met his future broker (let's call him Buzz) at a seminar sponsored by his company. Buzz was persistent. He called Bill at work and met with Bill and his wife at his impressive office.
Buzz explained the benefits of rolling over all of the money in their 401(k) plans ($400,000) and investing with him. He told them he could make them "millionaires" over time. Bill's plan for early retirement was enthusiastically endorsed by his employer. In fact, the 401(k) plan administrator at the company participated in three way calls with Buzz, Bill and his wife.
Buzz invested all the retirement money entrusted to him in a portfolio of 100% stocks. When Bill and his wife expressed concern they were losing money, they were brushed off by Buzz who said: "Let me do the worrying, this is why I keep a drawer full of TUMS."
After losing a substantial portion of their retirement portfolio, Bill and his wife fired Buzz. They consulted a lawyer and were told they had agreed to mandatory arbitration of all disputes with their broker. The arbitration process is administered and controlled by FINRA, an industry trade association, which holds itself out as "the largest independent regulator for all securities firms doing business in the United States."
At the arbitration, a shocking thing happened. The broker testified (under oath) that he had advised Bill and his wife to invest much more conservatively and to take less income, but they refused. He supported this testimony with memos he sent to them in which he gave precisely this advice. He also produced a document in which Bill and his wife indicated they had a very high tolerance for risk and wanted to speculate. It was devastating.
There was just one problem: Bill never received the memos and the signature on the risk tolerance document was forged.
Bill's lawyer retained a firm of forensic document examiners. The firm concluded the memos were not authored on the dates they bore and the signatures on the risk tolerance document were not "authentic." They submitted a report of their findings to the arbitration tribunal.
Confronted with this shocking evidence, counsel for the broker did something quite extraordinary. He wrote the panel and stated: "My client [the broker] is prepared to acknowledge that testimony he gave ....was not truthful and he desires to make this clear to all parties and the Panel."
In any Court of law, an admission of perjury, forgery and obstruction of justice would, at the least, mean that all defenses would be stricken and judgment would be entered in the full amount claimed, plus interest, attorneys' fees and, most likely punitive damages. Most judges would also refer the matter for criminal prosecution.
So what did this FINRA arbitration panel do? They awarded a fraction of the losses incurred by Bill and his wife. No attorneys' fees. No punitive damages. Not even reimbursement for the cost of the forensic document examiner! After payment of expenses, Bill and his wife netted less than 15% of the amount claimed.
What happened to the broker? He was fired by his firm, but quickly obtained employment with another major brokerage firm where he continues to "serve" investors. FINRA took no action against him.
On its web site, FINRA claims it "...protects the most important investor in the world. You."
William Galvin, the Secretary of the Commonwealth of Massachusetts has a different take. He testified that FINRA's mandatory arbitration system is "an industry sponsored damage-containment and control program masquerading as juridical proceeding."
Who do you believe?
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As an ex trust banker/fiduciary involved in managing employee benefit plans; this is the most shocking sentence in the whole piece. If any of us had engaged in this kind of activity (in my day) we would've been flayed alive.
More has to done than eliminating FINRA. ERISA - the regulations governing qualified retirement plans - only allows for recovery of participant account balances lost - if one has a successful suit. This means that the deterent of exemplary damages cannot be brought to bear on plan administrators, sponsors or trustees. This is another surprise that is going to be discovered as people try to get to the bottom of the 401k mess in this country. The IRS has recently announced that it is sending out a questionnaire to over 1,000 large 401k plans as these plans have become the most non-compliant retirement product in the employee benefit universe.
My hope is that the IRS, as with Al Capone, can do a few agonizing things to plan miscreants that the courts and arbitrators are unwilling to do.
JUSTICE SYSTEM
At the time it was considered legalized stealing in the Penny Stock snake pit. I was shakened by the mendacity and larceny. Few brokers were ever brought to account. And many investment managers became corrrupted.
Mary Schapiro spent 10+ yrs at FINRA (Ne:NASD) as Vice-chair and Chairperson. Back to Reagan, to Bush, to Clinton, she has spent her entire career enforcing bad non-regulation. Her entire career. Not de-regulation, although that was part of it, but intentionally brutal abrogation of regulatory responsibilities.
FINRA was created by, and receives most of its funds, through fees and dues fromthe Banks. Does the Arbitration process mean we are stupid or crazy?
I can answer that.
We made Mary Schapiro, Chairperson of the SEC.
Stupid. Without a chance of ever seeing justice in our financial system.
Her longtime skinpressed intimacy with the Banksters, makes Timmeh look like a distant cousin, 12 times removed.
Q.E.D.
As a result, I soon face an arbitrator that has a 40 to 0 record against consumers (who is part of an arbitration company that is retained by Mossy) and could face a similar outcome as Bill and his wife and many other citizens who are railroaded by a system that is fundamentally unethical. Wish me luck...I'm going to need it!
Please see the video:
http://www.youtube.com/watch?v=9sCUmXfy03c
Story here:
http://www.mossyscrewedme.com
GET OUT OF THE HOUSE NOW!
You can't win when you play with these guys. Don't even try. I'm up to about 60% cash now, plan to be at 100% by year end.
And non-principal-at-risk suggestions?
I should have made it clear, my $ is in an IRA. And I love the mortgage principal pay-down idea. That is a guaranteed return with no risk of principal! It's just unloved because it's not sexy, and *especially because nobody makes a fee* when we do that!
Thanks, and good luck!
On the other hand, I think a doctor is likely to accomplish what he commits to do for you.