Lars,
I also agree with you on the point you made about it being funny (well, 'funny' isn't the best word, probably 'unbelievable' is a better operative) that they are getting away with it. I'm sure their position is that they are making good on the $2 billion in refunds. Well, that's all good and fine, but how much of that money will end up actually getting refunded to the investors? Remember, this has been litigated for years, and I'd be willing to bet that when its all said and done, the attorneys will end up with the lions' share of the settlement. And what about the "opportunity cost" for the investors? How many people's retirement savings were shattered in the LP debacles? Even if they got their money back after 7-8 years of litigation, what about the quality of life issues? For seven to eight years now, the people who were counting on this money for their retirement surely have had to make a lot of sacrifices in their lifestyles--I'd be willing to bet there are a lot of sad stories about retirees who were forced to move in with their children and make do on Soc. Security as a result of the LP debacle. What about them?
Another sad thing is, that even after the LP debacles, I'm sure you could walk into a wirehouse and find someone pushing the latest version of these LPs to Ma and Pa America. That's sad. The firm I work for does some private deals, such as private placements and bridge financings. However, we have a steadfast rule: anyone we show these deals to has to be what the SEC, under Rule 144, calls a "qualified investor." To be a "qualified investor" you need to meet these qualifications: either 1.) you have an annual income of $250,000 or greater, plus you need to demonstrate that your income will be above $250k for the foreseeable future; or 2.) you have a net worth of over $1 million. In addition, you are required to be a "sophisticated investor," or have an atty or accountant certify that he has evaluated and approved the investment on the investor's behalf, if the investor is not deemed "sophisticated." Perhaps the LP debacle would've never occured had the wirehouses adopted the same standards and requirements that we use for our private deals. The LPs were risky, highly leveraged deals, and should've been marketed as such.
I often find it strange that the SEC/NASD has put out of business most of the bucket shops of the '80s, yet the wirehouses that pushed LPs are still in business and in good standing with the regulators. The bucket shops were run off after they were pushing crappy stocks, but is there any difference between a lousy penny stock versus these LPs? I don't think so. Both had the same characteristics: investment vehicles designed to make a lot of money for the firms, albeit at the investors' expense. I just don't think there is much of a difference. I have to laugh when I see the ads on TV portraying some of these firms who are preaching, through the ads, "Ah, we CARE about the clients...our clients' interests are our #1 priority..." I ask myself, "Hey, aren't these the same firms that were shoving LPs out the door as fast as they could sell them a few years ago? What gives?"
I would be willing to bet that the LP practices are still going on. I worked at a wirehouse in 1991--well after the LP debacle had been uncovered--and they were still being hawked aggressively. I remember one time, I cold called by mistake a guy who was already a customer of another broker in my office. I pitched some stock to the guy (not knowing that he was this other broker's client) and after my pitch, the customer told me that he was a client of this guy's, but the stock I told him about sounded good, and he asked me if I would have the other broker call him, because he wanted to buy some of the stock I had told him about. Well, I walked into the other broker's office, explained what had happened, and told him that his client wanted him to call, because he wanted to buy this stock. This particular broker's business consisted of almost exclusively LPs (OK, at that point, they were calling them "Direct Investments"--what a joke--Ok and I guess garbage men are really sanitation engineers too :) ). His response floored me: "If it doesn't have AT LEAST 7% commission in it, then its not even worth my time to make the call to the customer!" That was in 1991, so I'm sure the LP practice still goes on today.
Well, I have been on my "pulpit" long enough today and need to get back to work.
Gary |
