Karen the “Supertrader” (Part 2)
Posted by Mark on July 25, 2016 at 06:50 | Last modified: June 2, 2016 12:50Last time, I explained the delivery of Karen “the Supertrader” Bruton to the trading masses. On May 31, 2016, the SEC made a press release about the 34-page complaint.
Here are some excerpts:
> Each month, Hope [Advisers, which is owned by Bruton]
> caused the Funds to make certain “Scheme Trades” that
> had the purpose and effect of realizing a large gain
> in the current month while effectively guaranteeing
> a large loss would be realized early the following
> month. In essence, these trades continuously
> converted any realized losses into realized gains in
> the current month, and losses which would be realized
> in subsequent months, except that they would be
> continually deferred by the Defendants engaging in
> additional Scheme Trades. The Defendants…
> intentionally sized the Scheme Trades such that the
> Funds realized a profit every month… without the
> fraudulent Scheme Trades, Hope would have received
> almost no incentive fees from at least October 2014
> through the present. Instead, Hope extracted millions
> of dollars in incentive fees. In recent months,
> Hope has been using the Scheme Trades to avoid
> realization of more than $50 million in losses, while
> still earning large monthly incentive fees…
> Of the 10% incentive fee paid to Hope by the HI [Hope
> International] Fund, Bruton divided the fee nearly
> equally among herself and two other Hope employees,
> after paying salaries of other employees and expenses
> for Hope…
> If those unrealized losses had been factored in, as
> required by the operating agreement, Hope would have
> been entitled to no fees. Instead, Hope collected
> over $1 million worth of fees during that period…
> Bruton paid herself a significant portion of the fee
> income…
> For example, in October of 2014, Hope experienced
> massive trading losses as a result of volatility in
> the market… [Her funds] collectively ended the month
> with unrealized losses of approximately $100 million,
> most of which resulted from the October trading losses.
> Nevertheless, Hope reported to investors that the
> Funds had millions of dollars’ worth of “realized”
> gains in October and collected incentive fees of more
> than $600,000… Despite the massive trading losses
> in both Funds that month, Bruton caused Hope to pay
> her over $220,000 in early November 2014 for her
> October “performance…” The Defendants never told
> the Funds’ investors about the Scheme Trades… The
> Defendants never told the Funds’ investors that
> Hope was causing the Funds to make trades for the
> primary purpose of avoiding realization of losses.
I will continue in the next post.
Categories: optionScam.com | Comments (0) | PermalinkKaren the “Supertrader” (Part 1)
Posted by Mark on July 22, 2016 at 07:34 | Last modified: June 2, 2016 12:32Tom Sosnoff introduced the financial world to Karen “the Supertrader” Bruton in a series of interviews broadcast on Tasty Trade (TT), a financial education network. The nickname reflects her supposed windfall success with options.
As of the date of this writing, it’s not hard to find Karen’s interviews or related discussion on the Interwebs. YouTube has them as does the TT website. The first was done on May 31, 2012. Two subsequent interviews were done on February 11 and July 23, 2014. I follow several trading forums to stay apprised of the “latest and greatest” on trading TV and it’s not a leap to say that in the world of retail traders, Karen the “Supertrader” has achieved legendary status.
Tom Sosnoff founded thinkorswim (TOS) brokerage and has always been an outspoken advocate of the retail trader. After TOS was purchased by TD Ameritrade in 2009, Sosnoff co-founded TT. He has made numerous speaking appearances in different cities over the years where a series of presentations are given amid a festive backdrop of food, drink, and goodies. Despite his seemingly crazy schedule, Sosnoff answers e-mails personally (short and sweet but I believe it’s him).
Sosnoff has cast the rallying cry “Power to the People!” upon the average retail trader. With evidence to support his relentless critique of the financial industry, he encourages people to assume control of their own investing/trading. I believe many “newbies” have taken the leap because of Sosnoff’s efforts and I feel he is to be commended for his effort. This is not to say that he doesn’t profit from potential conflicts of interest but that is beyond the scope of today’s post.
Without question, I think most of Karen the “Supertrader’s” popularity stems from Tom Sosnoff himself. When a rockstar like that puts someone up on a pedestal as a virtuoso success and interviews her about the millions she has made and her humble beginnings, people are sold, persuaded, and inspired.
I will discuss Karen’s alleged wrongdoing in the next post.
Categories: optionScam.com | Comments (2) | PermalinkFinancial Advisers: Quite the Unsavory Lot? (Part 2)
Posted by Mark on July 5, 2016 at 11:48 | Last modified: May 31, 2016 15:43Today I will continue my discussion of the abstract by Egan et al. and then conclude with some additional comments about the article.
> Firms that persistently engage in misconduct coexist with
> firms that have clean records… differences in consumer
> sophistication may be partially responsible for this
> phenomenon: misconduct is concentrated in firms with
> retail customers and in counties with low education,
> elderly populations, and high incomes.
This is shocking. In so many cases, people hire financial professionals precisely because they do not feel educated in this domain. For the industry to focus its fraudulent efforts on the low-hanging fruit is absolutely despicable.
And yes, I did write “the industry.” I highlighted the failure to break down numbers between the financial and insurance industries. We know it’s not more than 7% for either, based on the sample, and despite their having a five-fold greater chance of committing misconduct again, they are able to continue working.
> Our findings suggest that some firms “specialize” in
> misconduct and cater to unsophisticated consumers…
This is a serious indictment.
> Firms that employ more employees with records of
> misconduct are also less likely to punish additional
> misconduct.
They also said firms more likely to hire advisers previously disciplined had higher incidences of misconduct. This all suggests misconduct to be related to a firm’s organizational culture. The worst firms in terms of percentage disciplined for misconduct were Oppenheimer & Co., Inc. (19.60%), First Allied Securities, Inc. (17.72%), and Wells Fargo Advisors Financial Network, LLC (15.30%). Conversely, the best firms were Morgan Stanley & Co. LLC (0.79%), Goldman, Sachs & Co. (0.88%), and BNP Paribas Securities Corp. (1.17%).
One potentially confounding variable is the definition of misconduct. Many cases involved the suitability of investments. For example, a high front-load, aggressive mutual fund would not be appropriate for an elderly client. In 2015, the President’s Council of Economic Advisors reported on bad [unsuitable] advice without categorizing it as misconduct. The Council estimated such conflicts of interest to cost working-class and middle-class families up to $17 billion per year. I would definitely consider this misconduct but I don’t know whether it was included for purposes of the article.
To summarize, roughly 12 out of 13 advisers have no records of misconduct. Because of the one in 13 who do, I would strongly suggest anyone employing such individuals to run a background check first. Two places to start are the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck database and the SEC Form ADV, which may be accessed here.
Categories: optionScam.com | Comments (0) | PermalinkFinancial Advisers: Quite the Unsavory Lot? (Part 1)
Posted by Mark on June 30, 2016 at 07:13 | Last modified: May 31, 2016 15:09Whenever money is involved, it seems like fraud is not too far behind. Mark Egan, Gregor Matvos, and Amit Seru have recently added fuel to the fire with a 61-page article published Feb 2016.
Egan et al. write:
> [from] Luigi Zingales in his American Finance Association
> presidential address: “I fear that in the financial sector fraud
> has become a feature and not a bug.” This perception has been
> shaped by highly publicized scandals that have rocked the
> industry over the past decade. While it is clear that egregious
> fraud does occur in the financial industry, the extent of
> misconduct in the industry as a whole has not been
> systematically documented.
I am now going to discuss the abstract.
> We construct a novel database containing the universe of financial
> advisers in the United States from 2005 to 2015, representing
> approximately 10% of employment of the finance and insurance
> sector. Roughly 7% of advisers have misconduct records. Prior
7% seems astonishingly high to me but I would offer two caveats.
First, while this research is significant in assigning hard numbers for perhaps the first time, I don’t have a point of reference. Pharmacists steal narcotics, physicians commit insurance fraud, and lawyers violate due process guidelines. Most any profession that has an ethics board (Realtors too) has dealt with significant misconduct. I really need to see these numbers from other industries to have a better context for the current article.
The second caveat is that our authors have lumped the finance and insurance sectors together. We therefore don’t know to what extent the two separately contribute. This seems like a significant qualification of many conclusions we might possibly take from the article.
> offenders are five times as likely to engage in new misconduct
> as the average financial adviser. Firms discipline misconduct:
With a rate of recidivism that high, why are these advisers even allowed to remain a part of the industry once they have been found guilty? Maybe if this research has significant impact they no longer will. Then again, since nobody knows if this is more a comment on the financial or insurance industry, perhaps nobody should take it seriously at all.
> approximately half of financial advisers lose their job after
> misconduct… of these advisers, 44% are reemployed in the
> financial services industry within a year…
I would think lifetime bans for misconduct could go a long way toward cleaning this up.
I’ll continue in the next post.
Categories: optionScam.com | Comments (3) | PermalinkDoomsday Forecasting (a Primer)
Posted by Mark on May 24, 2016 at 07:13 | Last modified: April 19, 2016 09:17Bob Veres wrote an entertaining article in the April 2016 issue of Financial Planning. While some get premium pay for marketing services, he offers up this four-part recipe for “no added cost.”
Step 1 is to call a financial services reporter at some random point during the next year and forecast disaster. This will help you become a household name quickly: “if the market will bleed, it will lead.” This will also establish you as someone concerned about shielding assets from huge losses. Being the one looking to take them out of “risky” stocks and protecting them from “normal market returns,” you will be viewed as a savior!
Step 2 takes place slowly as your prediction will likely not come to pass. Veres points out that nobody, including those who reported your alarmist views, will check up on your track record so this is okay.
Step 3 is to wait a short period of time before repeating Step 1. Be dramatic, creative, and bold!
Step 4 is eventual confirmation because the law of averages suggests your probability of success to be directly proportional to the number of attempts.
Being right once is all it takes to make you newsworthy for many years to come. People like Andrew Roberts (Royal Bank of Scotland) and Marc Faber (“Dr. Doom”) have made a living out of doing this so why can’t you? Both were right once. Michael Lombardi (Profit Confidential) was wrong with the “Great Crash of 2013” but did say in January of this year that the markets would “look similar to 2008.” Brilliant!
Rather than leaving us in the lurch, Veres gives us a few bonus recommendations. First, continue to make wild market predictions so as not to disappear from public consciousness. Second, make use of forecasting technology like the random number generator or dartboard to determine whether a bullish or bearish environment is upcoming. Keep your methodology proprietary and become comfortable with others referring to you as a “guru.”
Finally, never stay true to the predictions when investing your own money. If anyone should be able to wait additional years before being able to retire, “let it be the nervous investors whose darkest fears you stoked along the way.”
Categories: optionScam.com, Wisdom | Comments (1) | PermalinkAccuracy of the Expected Move (Part 3)
Posted by Mark on April 23, 2016 at 06:18 | Last modified: March 31, 2016 06:16I want to wrap up this discussion by stepping back for a broader perspective. This business of Expected Move reminds me of just that: marketing.
Being particular and well-defined makes Expected Move a concrete idea. I have no clue where the 85% number comes from or how they stumbled upon the average between ATM straddle and nearest OTM strangle. It doesn’t really matter, either. We like being able to calculate something because we feel we have knowledge and/or skills.
From a marketing standpoint, I believe the goal is to attract attention. This may be done by defining a concept that can be used and referenced. Being palpable enables it to get into our consciousness.
Market Maker Move (MMM) is similar to Expected Move except it embodies a different marketing approach. TOS brokerage created MMM and includes it on the brokerage platform. Unlike Expected Move, MMM is proprietary. Proprietary content attracts attention by adding an aura of mystery and forcing me to visit the creator directly for the information.
Something proprietary like MMM does not make for the concrete awareness of Expected Move but the marketing goal of attracting attention may still be realized. We start to talk about it and curiosity takes over:
“MMM is like Expected Move and available on TOS.”
“What is TOS?”
“Thinkorswim brokerage by TD Ameritrade. You can sign up for a free paper trading account to check it out.”
“Oh! I’ll have to check that out.”
Marketing is about spreading the word.
I categorized this post under optionScam.com to highlight the marketing/advertising undertones here. I do think Expected Move is a bit of a [deceptive] misnomer but nobody is guilty of “robbing Peter to pay Paul” or anything else. I don’t want my awareness of marketing to prevent me from making use of a good tool but I do want to be aware of marketing because in other instances people may use it in a blatant attempt to siphon capital from my tank.
Categories: optionScam.com | Comments (0) | PermalinkSleep Easy Stocks (Part 2)
Posted by Mark on January 21, 2016 at 07:22 | Last modified: December 7, 2015 07:32I intended this to be a quick hitter but in writing the last entry I discovered the fabled “sleep easy portfolio” has two separate characteristics: not being perpetually stressed over potential losses and bragging about winners.
People love to brag about winners. If bragging were ever to be justified then I believe one who works hard at something has more right to do so than one who had it easy and did not put forth any effort at all [I still think bragging should be avoided because it amounts to hubris and as the old adage states, “karma’s a *itch“].
Another cliché is “no risk no reward.” If I truly have no risk then I may sleep easy but I will not make any money.
What I don’t see happening is having my cake and eating it too: no stress and the ability to brag about windfall profits. If I make good money and it seems easy then I should avoid bragging because luck might have played a part and it’s probably just a matter of time before Mr. Market evens the score (and then some). Not everyone can make good money because not everyone works hard, which is one reason a hard work ethic is highly valued in this society.
The “sleep easy portfolio” is therefore nothing more than a myth.
I used to know somebody who would say “I don’t need to work as hard as you because I ‘get’ things faster.” She later went to alcohol rehab and things did not fare well for her. My guess is that until [if] she changes that belief about hard work, she will always be in denial and will continue to have great difficulty finding success in her life.
Categories: optionScam.com, Wisdom | Comments (0) | PermalinkSleep Easy Stocks (Part 1)
Posted by Mark on January 19, 2016 at 06:42 | Last modified: December 7, 2015 06:49In May of last year, I saw a comment on a trading forum that truly resonated with me:
> If a successful hedge fund manager is anxious about
> the market, perhaps he should just take some valium.
> Any investor in something as unpredictable as the
> stock market who isn’t anxious–all the time–is not
> in touch with reality. Whether the market is up,
> down, or sideways, anxiety should be the baseline
> emotion. Anyone who thinks he has a “sleep well at
> night portfolio” is an idiot in denial.
In my opinion, plenty of reasons may be had to be bullish or bearish at any moment on the right edge of a chart. Optimists and pessimists always exist in the marketplace and the financial media’s whole business is to come up with both sets of arguments in order to capture as large an audience as possible.
In retrospect, it’s easy to look at a chart and say “it was easy to trade back here as the market was trending smoothly.” Investors and traders seem to do this all the time.
Now into my ninth year of full-time trading, I have not found these stories about easy money and stress-free trading to be reality. Rather, I consider it the stink of marketing and advertising. I’m not on edge during the days and experiencing cold sweats at nights but you also will not hear me bragging about profits. No matter what I’ve made in the past, I can easily lose everything when I encounter the next vicious market environment. This is reason enough to always keep one’s head on a swivel and to never think a portfolio without risk is a reasonable expectation.
If you disagree with the latter point then please consult Ronda Rousey. I would be very interested to hear what she thinks.
Categories: optionScam.com, Wisdom | Comments (1) | PermalinkWho Can You Trust? (Part 6)
Posted by Mark on January 4, 2016 at 07:05 | Last modified: November 18, 2015 18:18I was hoping to end this fraud discussion last year but being such a pervasive cancer, it sticks around like a musty odor. I left off with the role of intersubjectivity in combating the con artists.
While a powerful tool, intersubjectivity has more difficulty validating experts. An expert is a “person who has a comprehensive and authoritative knowledge of or skill in a particular area.” Again, intersubjectivity is what makes someone’s knowledge “authoritative.” That judgment must come from someone else who shares or can appreciate the supposed expert’s level of understanding. Confirming popular subject matter may not be easy but it is at least doable because there are many teachers available in-person or online.
When it comes to an esoteric domain, however, intersubjectivity may fail altogether. Even more than motivational speaking, I would love to get up in front of a group of interested listeners and teach option trading! I am qualified because I have spent thousands of hours studying, backtesting, and doing it with real money. Despite my good intentions, though, few in a position to give me the gig I seek (e.g. school principals, department heads) can verify that I know what I am talking about or that my intentions are pure.
Think for a moment about what it would take to authorize a complete stranger to teach your students. Do you know/trust a successful trader able to confirm my expertise? You would certainly be hard-pressed to find verifiable approaches to consistent long-term profitability online. This is the hard work people must do on their own and once they get results, they typically look to sell or profit rather than sharing freely where they may be viewed by others (e.g. blogs, internet forums, free websites). At the end of the day, maybe I will get the gig if and only if I prove to be a good salesman.
These are recurring themes that I have discussed before.
My takeaway is “roadblocks everywhere!” This is a launch pad to a different discussion about how the financial industry protects a core approach to generating revenue: a story for another time, perhaps.
Happy New Year!
Categories: About Me, optionScam.com | Comments (0) | PermalinkWho Can You Trust? (Part 5)
Posted by Mark on December 31, 2015 at 07:55 | Last modified: November 18, 2015 17:23Mandell gives a bad name to motivational speakers, to personal coaches[ing], and to some aspects of cognitive behavioral therapy. The idea that my mission could be synonymous with sociopathic behavior is very troublesome.
What kind of world do we live in where the passionate causes of good, altruistic people can themselves be mistaken as fraudulent advances? I like to teach and I would love to get up in front of a group and speak fervidly about the virtues of positivity, of meditation, and of visualization. My aim is not to take or steal: I aim to give back. Now I realize in the midst of my outpouring someone could raise their hand and say “are you trying to scam us?” That’s a reasonable question because Ross Mandell is high-profile precedent.
The reality is no matter how strongly we may feel about altruistic causes, those on the outside may (and perhaps should) always question our true intentions.
As a more general statement, intersubjectivity (described here) is one way to check fraudsters at the door. My true intentions cannot be verified because nobody can read my mind. A better understanding could be gathered by studying my behavior over time and across situations for consistency. This is how we get to know people on a personal level.
Intersubjectivity is one reason awareness was given as a way to combat fraud. “Only a very small percentage of people ever report… fraud… As long as that continues, fraudsters… will continue…” Share with others and talk about it. That is intersubjectivity at work.
Intersubjectivity was also discussed as one of your strongest defenses against fraudsters based on the way con artists “separate you from your friends and family by placing extreme secrecy on all facets of the deal.”
Intersubjectivity is also discussed in the last post:
“The next step is to make himself or herself appear to be
the only person on whom you can rely for the fulfillment
of your wishes, desires, and/or personal safety…”
The emphasis is mine.
Categories: About Me, optionScam.com | Comments (1) | Permalink