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Yet Another Reason Not to Trust the Big Commercial Investment Firms
In June 2007, Reuters
reported the following story:
Morgan Stanley will pay $4.4
million to settle a class-action lawsuit with brokerage clients who bought
precious metals and paid storage fees, according to a court filing. The proposed settlement,
which must be approved by the federal court in Manhattan, includes a cash
component of $1.5 million and economic and remedial benefits valued at about
$2.9 million, according to a court filing on Monday. The suit, filed in August
2005, alleged that Morgan Stanley told clients it was selling them precious
metals that they would own in full and that the company would store. But Morgan
Stanley either made no investment specifically on behalf of those clients, or
it made entirely different investments of lesser value and security, according
to the complaint.
About 3 years later, yet
more fraud committed by JP Morgan has surfaced in which they commingled $8.6
billion of clients’ assets with its own for seven years without their clients’
knowledge:
JPMorgan Chase & Co.'s
London unit was fined a record 33.3 million pounds ($48.9 million) by Britain’s
financial regulator for not properly separating client money from the firm’s
accounts. An average of $8.6 billion wasn’t properly segregated by JPMorgan
Securities Ltd. in an error that went undetected for seven years, the Financial
Services Authority said in a statement today. Client money held by the bank’s
futures and options business wasn’t put in a separate overnight customer
account, the FSA said.
The bankruptcy of Lehman
Brothers Holdings Inc., which roiled financial markets worldwide in 2008,
forced the regulator to put financial companies on notice that they must
properly separate client funds. New York-based Lehman’s creditors filed more
than $830 billion of claims and regulators worldwide are trying to unravel how
money moved through its global units.
“The FSA has repeatedly
emphasized the importance of ensuring that client money is adequately protected,”
said Margaret Cole, the FSA Enforcement Director. “This penalty sends out a
strong message to firms of all sizes that they must ensure client money is
segregated in accordance with FSA rules. Firms need to sit up and take notice
of this action -- we have several more cases in the pipeline.” Had the company
gone bankrupt, clients could have lost all their money, according to the
regulator.
And with the Department of
Justice now investigating JP Morgan for fraud and manipulation in the silver
futures markets, one would pretty much have to have the mental prowess of an
ant to continue trusting JP Morgan by purchasing the SLV ETF and believing that
holding the SLV will provide any protection to your financial wealth during the
second phase of this monetary crisis.
About the author: JS Kim
is the Chief Investment Strategist and Managing Director of SmartKnowledgeU,
LLC, a fiercely independent wealth consultancy company that guides investors in
the best ways to invest in gold and silver through the progression of this
global financial & monetary crisis.
»
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Commingling and sodomy are still illegal?
If you ask me people who put their money in ANY US Bank today DESERVE to lose their money.
The people learn nothing and forget everything
Seven years of years of an 'undectected error', how unfortunate.
$50 million fine for misusing $8.6 billion for 7 years is hardly more than a small slap on the wrist. I am not even going to bother to figure out what the effective interest rate was on that fine. Why not just suspend their license for a month? Otherwise, JPM can just look at it as a cost of doing business.
http://articles.sun-sentinel.com/2010-06-01/news/fl-global-bullion-stolen-silver-20100528_1_jamie-campany-actual-gold-or-silver-global-bullion-exchange
It could be solved so easily: just tie brokers' (FC's, FA's, VP's whatever) pay to performance of client accounts. Put them on the same side of the table, for real. I tried to make this argument once to my then boss at Smith Barney. He said it was against regulation, which I'm sure was BS. We were paid as asset gatherers. The more we brought in, and put to work in managed programs or funds or whatever was hot at the time, the more we got paid. Client performance had no bearing whatsoever on our comp.