October 19, 2007

A Black Friday Retrospective

It has been 20 years since the stock market crash of 1987. Many were predicting that this was the end of the world as we know it (Insert REM music here). Others saw the crash as a buying opportunity. It turns out that the buyers were probably right.

If we look at a chart of the major market indices such as the Dow Jones Industrial Average, the Standard and Poors 500 and the Russell 1000 have done quite nicely over the last 20 years. In fact, the "crash" shows barely a blip on a historical chart.

The 1987 crash brought an onslaught of arbitration claims. It wiped out billions of dollars of net worth and pointed out weaknesses in various systems. Daily trading volume on the NYSE was over 600 million shares during the crash period -- and the system was strained. Now, daily trading volume regularly tops 1 billion shares without a hitch.

This year marks the 215th anniversary of the execution of the Buttonwood Agreement, which marked the formation of the NYSE. Much has changed, including the fact that the exchange is now publicly held instead of owned just by its members. But the basics remain the same. Buy good stocks and remember the reason they were purchased during market downturns.

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Posted In: Investments , Securities Industry

October 15, 2007

Get Your Broker's History For Free

Every stockbroker is required to register with the state in which he or she does business and with, at a minimum, FINRA (formerly known as NASD). A broker's background, as maintained by FINRA, can be found here. Every customer of a broker should look at the broker's background before trusting their life savings to a stranger.

And every broker is a stranger. No matter how much you know about your broker, you will certainly not hear of arbitration awards or regulatory sanctions. The new BrokerCheck generates a very user-friendly report in pdf format which can be saved for future reference. It contains the broker's employment history, registration history, any outside business affiliations and, if applicable, and regulatory/litigation history.

Most brokers have clean records or records with minor dings on them. Other brokers have plenty of dings but they may be due to a product failure, such as Limited Partnerships or firm research stocks. But a consistent history of such magic terms as "unauthorized trading" or "unsuitability" should give you reason to look elsewhere. It may mean that the broker you're speaking with has a difficult time complying with the rules. With over 50,000 registered brokers, you should be able to find one that suits your needs.

That's the view from The Law Planet - Jupiter, Florida.

Posted by Admin |

Posted In: Securities Industry

October 8, 2007

Morgan Stanley Fined For Hiding Emails.

The newly-minted securities regulator, FINRA just fined Morgan Stanley $12.5 million for failing to produce emails in its possession. To make this even more heinous, Morgan Stanley hid behind the 9/11 tragedy as the reason for its failure to produce. As it turns out, this representation was just wrong and Morgan Stanley knew it.

This problem came to light in a very public way when Morgan Stanley tripped over itself, numerous times, in Palm Beach County Circuit Court litigation with Ron Perelman. Mr. Perelman's lawyers pressed and pressed the firm for emails. And, magically, emails started popping up all over. Eventually, the judge decided that Morgan Stanley couldn't be trusted and shifted the burden of proof to Morgan Stanley to prove that it wasn't liable to Perelman.

We have litigated against Morgan Stanley. In all cases but one, the company fought production of obvious items, produced incomplete documents and stated that documents didn't exist, and then produced the documents when forced. In one case, we were told no documents existed and a witness showed up at a hearing to testify with a big stack of paper that was in a file outside his office.

Litigation is a battle. But there are rules and expectations of lawyers and clients to abide by those rules. Morgan Stanley was fined for more than an oversight and it was deserved. Perhaps this will serve as a warning to other firms who play games in discovery.

That's the view from The Law Planet, Jupiter, Florida.

Posted by Admin |

Posted In: Securities Industry

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