Tell me what you want, and I will tell you what you have to do financially to get it !

Below you will find our press releases with the title highlighted in color.

Fire Mary Schapiro

Dear Mr.President

Fire Mary Schapiro

March 4, 2010

Fire Mary Schapiro!

The Project On Government Oversight (POGO) claims that self-regulation does not work because FINRA did such a lousy job. POGO has the right idea, but the wrong perpetrator.

The only thing wrong with self-regulation in the securities industry is the fact that it has been corrupted by political contributions. The big Investment Bankers like Merrill Lynch and Goldman Sachs dominate FINRA and dictate what goes on in the industry by making massive political contributions to your Congressmen, Senators and Presidents. The Investment Bankers decide who gets appointed to be SEC commissioners and Chairmen, and the Presidents who took their money give them the appointments that they want!

Mary Schapiro was the top cop at FINRA when all those bad things happened. No matter what explanation you believe, she had a bad track record, and America does not reward failure! Yet, President Obama appointed Schapiro as SEC Chairman. Obama received over $14 million in political contributions from the securities industry! [See or call (202) 857 0044]

Starting with the 1990 elections, the Securities & Investments industry gave a total of $678, 660, 539 to the politicians. Yes, that is $678 million dollars! By contrast, the Insurance companies gave only half as much, $325, 092, 127, and Commercial Banks gave $221,510,027 during that same period! “Money talks and bullshit walks“; the securities industry has bought and paid for the kind of government regulation of the financial services industry that it wants -to hell with protecting the public!

In 2008, 150 Merrill Lynch executives received $1 million or more in bonuses. Everyone said that was outrageous at a time when Merrill Lynch was in the toilet. Those executives probably contributed a lot of that money to the politicians!

FINRA is the enforcer. Just like in the Mafia, their “soldiers” go out aLynch
and the other Investment Bankers.

FINRA will fine a small Broker Dealer for something, and then let one of the big boys off with a warning! A few years down the road, FINRA examiners are hoping to get a good job in the compliance department of a major Investment Banking firm!

If you check the disciplinary record before Mary Schapiro became the NASD CEO, roughly 200 to 300 reps were disciplined per year. Out of 660,000 that is amazing testimony about the integrity of the securities salesmen - less than 5 one hundredths of one percent! If you looked more closely, those who were disciplined almost always worked for a firm with more than 150 reps, and it was the same large firms over and over again!

POGO also opposes FINRA’s intent to regulate the Investment Advisors. Again, POGO has the right idea, but for the wrong reason. Goldman Sachs and the other Investment Bankers are trying to steal control of the entire financial services industry! Using FINRA to control the Investment Advisors is just part of the Master Plan! Of course, money is the reason.

The oldest of 76 million Baby Boomers started to retire in 2008 at age 62.While the Boomers were contributing to their 401(k) plans, securities salesmen could not earn any commissions on that money. Surveys indicate that the average retirement age Boomer has a net worth of about $250,000. In order to
nd break legs in order to keep the Broker Dealers in line. FINRA burdens the Broker Dealers with meaningless administrative requirements in order to make it more difficult and more expensive for the small Broker Dealers to compete with Merrill begin their retirement, those Boomers need to rollover their 401(k) account balances, and all that $250,000 needs to be reinvested. That will be a Tsunami of new transaction commissions for someone!

The only thing stopping Merrill Lynch and Goldman Sachs from harvesting all those commissions is the older salesmen who already have a working relationship with the Boomers, and the Insurance industry which has guaranteed products that compete directly with the stock market for retirement assets. The Investment Bankers went after their competition in 2 ways.

First, FINRA started to enforce its “No Parking” rule (FINRA # 1031), and insisted that in order to keep your securities license, you had to make a substantial amount of new sales. Broker Dealers simply terminated people without any legitimate reason even though the ”No Parking” rule violates the 1934 Securities and Exchange Act! (section 15A.g.4 of the 1934 Securities and Exchange Act) Broker Dealers started demanding that their representatives pay “fees” of $1200 per year besides all the licensing and Continuing Educational expenses, and the overcharged for the company Errors and Omissions Insurance. All those efforts eliminated about 40,000 licensed competitors!

The older salesmen who could not make any money while their clients contributed to their 401(k) plans at work were forced out of the business just before their clients began to retire. Now those clients are fair game for a different salesman, and Merrill Lynch was hoping that would be one of their salesmen!

At the same time, the Investment Bankers went after the Insurance companies. Former Goldman Sachs CEO, and US Treasury Secretary, Henry Paulson, argued for Federal regulation of the Insurance companies. SEC Chairman, Christopher Cox attacked Index annuities, a very popular Insurance product which competed directly for stock market investments. Not to be outdone, FINRA CEO, Mary Schapiro attacked Variable Annuities as being unsuitable. It was a well orchestrated attack on the Insurance industry which is the primary competitor for Retirement money. They threw everything they had at the Insurance industry. Read the Wikipedia article on Henry Paulson, and you will probably conclude that Paulson engineered the whole attack!

Everything was under control until the Subprime mortgage market blew up in their face, but the Investment Bankers manipulated that as well. Some Investment Analysts claim that they recognized the Subprime mortgage problem as early as 2006. After the first quarter 2007, everyone knew that the Subprime mortgages were defaulting at alarming rates. That should have prompted a call from Cox and Schapiro. Broker Dealers must maintain a minimum required net capital, and the losses from defaulted Subprime mortgages would threaten their net capital. Cox and Schapiro have excused their lousy performance by claiming that they did not have enough money to hire people with the right skill sets etc. How much money, how many people, and what skill set is required to make a phone call?

In April 2007, Merrill Lynch knew that they had a problem, and negotiated to hire John Thain in October 2007 to solve their problem. What did Cox and Schapiro know; when did they know it, and why didn’t they tell the public?

In 1934, congress realized that excessive use of borrowed money to buy securities (leverage or margin)
caused the 1929 stock market crash and the Great Depression. Congress authorized the Federal Reserve to control the use of leverage with Regulation T. No one could borrow more than 50% to buy a security. 62 years later, Congress passed the National Securities Improvement Act of 1996 which eliminated those margin restrictions for Broker Dealers like Merrill Lynch, Bear Stearns, and Lehman Brothers.
The Savings & Loan crisis of the late 1980s and early 1990s involved abuse of leverage, yet your politicians gave the Investment Bankers what they wanted!

The Federal Reserve was supposed to set different limits for those Broker Dealers, but, apparently, neither Greenspan nor Bernanke set any limits. Who knows what the right limit should have been, but when you buy a house, you put 10% down and borrow 90%. That is 9 to1 margin. Cox, and Schapiro allowed Merrill Lynch, Bear Stearns, and Lehman Brothers etc. to use more than 30 to 1 margin to buy those Subprime mortgages!
All your friends and clients can thank Cox and Schapiro for the current financial crisis, their unemployment, and their uncertain future! It was that flood of money into the Subprime mortgage market which precipitated all the other bad things which happened.

Mary Schapiro gave up her more than $2 million a year job as CEO of FINRA to take the job as SEC Chairman which only pays $160,000. She quit, but FINRA still paid her more than $5 million in separation pay! That is roughly enough to tide her over while she covers up her role and “fixes” the securities regulatory problem! Mary Schapiro is trying to give the Investment Bankers control of the financial services business on a silver platter!

Every stockbroker, insurance agent, and banker has a black eye thanks to Cox and Schapiro! Merrill Lynch and Goldman Sachs etc. used money to buy what they wanted.
You have something more valuable than their money - your voice and your vote!

In round numbers, there are over 2 million Insurance agents, Registered Representatives, and Investment Advisors. All of you combined have access to over 150 million Americans who can say what is on their mind and vote! Ask your clients and friends to write to their Congressmen and Senators to demand that Mary Schapiro be fired! If they want to know why, tell them to go to our website and they can read this entire article.

Nobody can retaliate against you because no one will know who inspired your clients to write to their politicians! Do it today!

Thank You,
Lee Feldman, President
Association of Counselors for Equity Securities, Inc.
412 561 0321

Dear Mr. President

                          Association of Counselors for Equity Securities, Inc.

                                                          (412) 561 0321

Honorable Barack H. Obama
The White House
1600 Pennsylvania Avenue
Washington D.C. 20500
September 15, 2009

RE: Cleaning up the Securities Industry and the Financial Crisis

Dear Mr. President;

I think you are doing a good job as President, but the health reform issue is becoming a big distraction. There are a lot of other issues, which require just as much attention. Your administration will fail because you have forgotten that:

“Those who cannot learn from history are doomed to repeat it.”
George Santayanna

1. You will fail to revive the American Economy for the same reason that Franklin Roosevelt failed during the Great Depression.

2. Christopher Cox and Mary Schapiro caused the current financial crisis by allowing Merrill Lynch etc. to use 30 to 1 margin to buy Subprime Mortgages.

3. The only changes we need in Securities Regulation are honest, accountable enforcement.

4. The SEC commissioners, past and present, and FINRA have been a willing participant in Securities Fraud.

5. The SEC and FINRA have violated Federal Antitrust laws.

6. The Fiduciary Standards that everyone talks about are a bad joke. They would not protect the public, and would be unenforceable in a court of law.

7. We need to protect the public by regulating the Banking and Insurance industry with a new law modeled after the 1934 Securities & Exchange Act. 


                       3100 Gaylord Avenue Pittsburgh, Pennsylvania 15216

8. Accountability in Financial Service regulation.

9. 401(k) plans are hurting employees’ retirement savings intentions.

10 A better IRA

11. Closer scrutiny of those financial institutions being regulated

Part 1. Reviving the Economy

Roosevelt failed because he did not use his most powerful economic weapon. He did not engage the American people. Great administrative planning is worthless unless it is well executed by the troops on the battlefield. You have to convince the American people that we are in an economic war for the survival of the American way of life in the new world economy.

Roosevelt’s famous inaugural quote “The only thing we have to fear is fear itself” and his radio broadcasts presented Roosevelt as a father figure patting his children on the head and telling them that everything was going to be all right. He was going to fix everything. He should have told them to get off their ass, and start hustling!

Like deer in the headlights, the American people were paralyzed with a depressing economic situation, hoping that “Superman” would fix everything. However, nothing was going to change unless the American people made it change!

Today, everyone hopes that you will “fix” the economy, and they are waiting for you to do it. You have to drive home the point that it is a dog eat dog world, and that all those other nations want the same strong economy that America used to have! You have to convince the American people that they have to get down to business if they expect to compete and survive in the new world economy. Economically speaking, they have to go to war!

Everyone knows that World War II revived the American Economy after the Depression. However, it was not the war, but the war effort that produced that success. People understood the threat of war, and changed from deer in the headlights to a determined army that knew its enemy, and was committed to do whatever was necessary to defeat that enemy. The psychological leverage of war brought sacrifice, ingenuity, and heroism out of the American, and we won that war.

Warren Buffet has already said that we are in a financial War. The American public does not realize that it must fight for its own economic survival.

In order for you to succeed as President, you have to create the motivation that will muster the greatest army of mankind - a determined American public!
You have to show them who the enemy is, what they have to do to combat that enemy, and drive the point home until everybody joins your army.

Shortly, I will show you that Christopher Cox and Mary Schapiro should be the poster children for your economic war. The represent all that is bad and ineffective in government and industry. They abused their government positions in order to work against the best interest s of the public. They need to be tarred and feathered.

A great deal of value was lost to our economy, but we can replace it with hard work. The weather forces farmers to deal with this kind of adversity all their lives. Unfortunately, most Americans have never worked on a farm.

There are at least 600 Bridges in the US that need serious repair. There is a lot of other infrastructure work that should be rebuilt. A steady flow of that work will help to bring back the American Economy. What we do not need is Pork Barrel projects that only waste taxpayers’ money. We need a Presidential line veto. That can be one of the rallying points of your Economic War.

Part 2. The Financial Mess

Everyone is busy trying to create new legislation to make sure that the current financial crisis does not happen again, but no one understands what caused the crisis.

The current crisis arose because Christopher Cox and Mary Schapiro allowed Merrill Lynch and the others to use 30 to 1 leverage in buying Subprime mortgages. All that borrowed money flooded the mortgage market with money to end. Banks made a handsome fee for every mortgage that they wrote. The Banks did not care about the borrower’s credit rating because they were lending Merrill Lynch’s money, and that is why all the shady deals happened! All the details which are now the story of how the current financial crisis came into existence were precipitated by the excessive use of leverage.

Everyone in the securities business knows that the 1929 crash and the Great Depression were caused by excessive use of leverage in the purchase of securities. That is why Congress created the 1934 Securities and Exchange Act which explicitly required the Federal Reserve to set limits on the use of leverage for securities purchases (Regulation T). For 62 years, neither you, nor I, nor Merrill Lynch could use more than 2 to 1 leverage in the purchase of securities. (i.e. only borrow 50% of purchase price)

Even after the Savings & Loan crisis, and the Long Term Capital fiasco nearly destroyed the banking system with excessive use of leverage, Congress passed the National Securities Improvement Act of 1996 which eliminated those margin restrictions for Broker Dealers. Congress specifically expected that the Federal Reserve would make separate rules for Broker Dealers, but apparently neither Greenspan nor Bernacke made such rules.

If Merrill Lynch and the others had not used massive amounts of leverage, the Sub Prime mortgage market would not have been flooded with money, and the current financial crisis would never have happened!

Christopher Cox and Mary Schapiro have no excuse. In fact, their excuses have sounded just as dumb as “the dog ate my homework”. They should have prevented Merrill Lynch from using that much leverage, and that is not hindsight! Everyone in the securities business knows that 30 to 1 leverage is too much. You cannot even buy a house with that much leverage. (Typically a 10% down payment is 9 to 1 margin, and a 20% down payment is 5 to 1 leverage)

Christopher Cox and Mary Schapiro should be the poster children for your economic war! What they did was not an accident. As I will show in Part 4, they let the Broker Dealers and others do whatever they want just like their predecessors have done. Only this time, the results of their improper behavior were publicly exposed in a big way.

Henry Paulson is another poster child for your economic war. He did not do the taxpayers any favor when he rescued Merrill Lynch. Before the crisis, Merrill Lynch was a Brand name, capital, and a large pool of talented people. Through a colossal, stupid mistake, Merrill Lynch lost its Brand name reputation and its capital. The talented people could have found work somewhere else on Wall Street. All that Paulson did was use taxpayer money to save Merrill Lynch shareholders from total loss.

Some analysts claim that they saw problems with Subprime mortgages in 2006. Everyone knew that Subprime mortgages were defaulting at an alarming rate by the end of first quarter 2007. Why is it the public never heard anything until the May of 2008 about Merrill Lynch’s problems with Subprime mortgages, and nothing about Bear Stearns or Lehman Brother’s similar problems? What did Cox, Schapiro, and Paulson know; when did they know it; and what did they do to protect the public? Or were they too busy protecting Merrill Lynch?

Cox, Schapiro, and Paulson are symbolic of the enemy for your economic war. Exorbitant compensation for Corporate Executives which was approved by their buddies on the Board of Directors represents another good enemy for your economic war.

Part 3. Securities Regulatory reform

Merrill Lynch and the other Investment Bankers have controlled the SEC for decades. They buy the regulators of their choice with massive political donations like the $14 million they donated to your Presidential campaign. Then the SEC does what Merrill Lynch wants!

The SEC has done more to protect the profits of Merrill Lynch etc. than it has to protect the public. In the last 5 decades, the SEC has allowed the Broker Dealers, the Mutual Funds, and Insurance companies etc. to do whatever they wanted. Only when someone was hurt and able to cry bloody murder loud enough, did the SEC step in and punish someone.

That is the complete antithesis of securities law. The 1934 Securities and Exchange Act gave the SEC the authority to prevent the sale of any security unless full disclosure of material facts and risks had been made. That is the required PROACTIVE approach to securities regulation. All those political contributions have resulted in a REACTIVE approach to regulation which is useless.

Before the fact you can protect the public by being PROACTIVE. After the fact, you can never make someone whole again by being REACTIVE. You do not stop anyone form selling a security; you make sure that they have disclosed all the material facts and risks. Then you let the public decide.

A recent FINRA report documented the fact that the FINRA botched a number of things. The FINRA people are not stupid, but that kind of disarray is a perfect cover for doing favors and otherwise undermining securities law enforcement. We need to clean house at the SEC and FINRA.

Part 4. Securities Fraud

There are at least 3 ways that Securities Fraud can be committed.

A. Acts of Commission i.e. outright lies

B. Acts of Omission i.e. failing to present all the material facts and risks which an intelligent person would need to know in order to make an informed decision.

C. Pandering to the public’s ignorance so that the public makes investment decisions based on untrue beliefs without full material disclosures that correct those known, mistaken beliefs.

The SEC has willingly allowed the Mutual Funds, Variable Annuities and Broker Dealers to use that third type of Securities Fraud to sell their products. FINRA has also been a willing accomplice in this crime.

4.A. Systematic Withdrawal

If the SEC was so concerned about “Suitability” of Variable Annuity investments, why were they not concerned about the suitability of Systematic Withdrawal? Why is there no FINRA rule about recommending Systematic Withdrawal offered by Mutual Funds, Variable Annuities or practiced by all the major Broker Dealers?

Almost all Mutual Funds and Variable Insurance products offer a service called Systematic Withdrawal. They will send you a check every month by deducting money from your account.

Not one Mutual Fund or Variable Annuity prospectus hints that there is any risk associated with the Systematic Withdrawal process. None of them mention the fact that the process could lead to bankruptcy of your retirement funds. No prospectus discloses the fact that Systematic Withdrawal has in deed resulted in bankruptcy several times in the past!

The data which discloses those bankruptcies for annual 6% Systematic Withdrawal is on my Website under the TAB “Don’t“.

That failure to disclose a material fact and risk is clearly documented securities fraud, and the SEC and FINRA are co-conspirators!

Furthermore, most Broker Dealers provide Systematic Withdrawal services for their customer investment portfolios. Again, no disclosure of the risk amounts to securities fraud, and the SEC and FINRA are both parties to that crime.

People who started systematic Withdrawal in 2000 or 2007 are probably going to be dead broke before they are dead. They should consult an attorney.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.B. VA Guaranteed Withdrawal

Many Variable Annuity contracts offer a 5% Guaranteed Withdrawal Benefit for a retiring couple. That 5% guaranteed benefit is equivalent to a 6% Mutual Fund Systematic Withdrawal when all the expenses and fees are counted. There is no way that the Insurance Company has enough reserves to back up that promise. In fact, only recently did the NAIC institute rules for the reserve requirements for VA guarantees, and even those rules are useless.

The joint life expectancy for a retirement age couple in their 60s is 26.5 years. Systematic Withdrawal has failed in as few as 9 years. The Insurance Company would have to replace 17.5 years of income in order to satisfy that promise. There is 5% withdrawn each year. The 17.5 years corresponds to 87.5% of the original investment.

People are going to be dead broke during their retirement because they were deliberately misled. When Systematic Withdrawal fails, the Insurance Company fails! Over the next 10 years, there will be more Insurance company failures.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.C. Pension Plan Fees

The SEC allowed Mutual Funds to market their products via Pension Plans without disclosure that the exorbitant fees being charged to the participant accounts were being used to subsidize the employers’ costs for the Pension plan.

The fee disclosure failure violates securities law. The subsidizing of employer pension plan costs violates fiduciary law regarding pension plans. Pension Trusts are supposed to be operated for the exclusive benefit of the participants - not the employer.

The SEC has no authority over Pension Plans, but it has complete authority over Mutual Funds that are sold under a pension plan.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.D. Index Mutual Funds Disclosures

I would give John Bogle the P.T. Barnum huckster award if I could prove that he instigated much of the Indexing nonsense that was spewed out by the syndicated financial Columnists in the media all over America.

The Constitution does not give the SEC control over the media, but it does have control over Vanguard and the other issuers of Index Mutual Funds and portfolios.

The Indexing promoters all claimed that Indexing performed as well as Actively managed accounts, but offered no meaningful evidence. The SEC should have forced all those Index Fund providers to disclose the performance of their Index relative to comparable Mutual Funds (usually Growth & Income Funds).

The Vanguard 500 fund has existed since 1976. Morningstar published its normal report on the Vanguard 500 Fund in 1994. That report clearly showed that over the previous 15 years, the Vanguard 500 Fund performed worse than 35% of all the actively managed funds in their category. No informed person would have concluded that Index Funds were superior to Actively managed Funds.

Failure to force Vanguard to make that disclosure constitutes securities fraud by the SEC because it allowed the public to be misled by all the hype in the media. Furthermore, FINRA had no regulations about the sale of Index Funds by securities salesmen.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.E. Vanguard Costs

Vanguard brags about its very low costs because that is the only investment criteria in which they excel. The SEC now requires all Mutual Funds and Variable Annuities to blatantly disclose all the costs which a shareholder would encounter. This misleads the public because it gives the impression that the lower cost Mutual Fund is the best. i.e. it plays right into the hands of Vanguard‘s marketing strategy.

The correct presentation of costs recognizes the truth!

Gross Investment Profit
- Costs
= Net Investment Profit

Mutual Fund performance is always stated as net investment profit. Yet most people do not do their homework, and believe the hype about costs.

Surveys have shown that many people believe that Vanguard is one of the top performing Mutual Fund organizations - right up there with the reputations of Fidelity and Janus for example. However, Vanguard’s actual performance net of all costs is not competitive. Never the less, perception is reality, and Vanguard has more assets under management than Fidelity thanks to this lack of proper disclosure by the SEC.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.F. Target Date Funds

The SEC allows Mutual Funds to offer target date funds without adequate disclosures. The name of the Fund implies that retirement finds will be ready at a certain future date. However, there is no specific disclosure of the strategy which will be employed to achieve that result. No independent third party could compare that strategy with actual past history to determine the probability of success or failure on the target date implied promise. As a result, the public is being misled.

It is relatively simple for portfolio managers to outline the strategy that they would use in terms of stocks, bonds, etc. All those investment categories have a well-documented history. That strategy could then us historic performance of the various investment categories in order to gauge the probability of that success with that strategy.

The public could not possibly construct the investment category performance history or carry out the analysis of the proposed strategy. However, the SEC could and must in order to protect the public from being ripped off by these false promises.

That is securities fraud. Both the SEC and FINRA allow the sale of these Target Date products without adequate disclosure. They are co-conspirators in this fraud.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

4.F. Portfolio Management History

Mutual Funds must disclose their historic performance so that investors can gauge the manager’s skills.

Broker Dealers, Registered Investment Advisors, and Stock Brokers manage money, but do not have to disclose their historic performance by the same standards as the Mutual Funds. Broker Dealers are required by law to keep transaction data for 6 years; thus the data is available.

Some will argue that individual customers are all different. However, there are 7000 Mutual Funds, and they are all different. Morningstar defined categories of investment portfolios for both stock and bond portfolios. Merrill Lynch could use the same descriptions to categorize the performance of their clients‘ accounts.

Broker Dealers used to sponsor Mutual Funds under their Broker Dealer’s name. Those funds do not exist anymore because their performance was mediocre and that public disclosure was embarrassing to the Broker Dealers.

Lacking intelligent data, the public is forced to make investment management decisions based on advertising and public relations hype rather than meaningful, informative disclosures of performance history.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

Part 5. Antitrust Violations

5.A Antitrust Violations Licensing

The SEC allowed FINRA members to terminate stockbrokers illegally for “insufficient” sales production. In reality, they were eliminating competition for the Baby Boomers retirement business.

FINRA/NASD “No Parking rule” 1031

A member shall not maintain a representative registration with NASD for any person (1) who is no longer active in the member's investment banking or securities business, (2) who is no longer functioning as a representative, or (3) where the sole purpose is to avoid the examination requirement prescribed in paragraph (c).

The “No Parking Rule” is forbidden by section 15A.g.4 of the 1934 Securities and Exchange Act:

A registered securities association may deny membership to a registered broker or dealer not engaged in a type of business in which the rules of the association require members to be engaged: Provided, however, That no registered securities association may deny membership to a registered broker or dealer by reason of the amount of such type of business done by such broker or dealer or the other types of business in which he is engaged.

The salesmen are Registered Representatives, and are normally called stockbrokers because they satisfy the legal definition of a Broker.

All FINRA members either refused to hire these terminated producers, or set high minimum production requirements in order to conceal their illegal activity.

A small Broker Dealer named Fortune Financial Services tried to recruit these terminated salesmen, but FINRA persecuted Fortune. Ask Mr. Steve C. Kach in the Philadelphia FINRA office why he persecuted Fortune. (215) 963 1968.

The Federal government does not care how much or how little you sell as long as you do not harm the public. On the other hand, Broker Dealers are businessmen who live and die on the transaction commissions that the salesmen generate. If the salesman is doing his job right, he is not churning the customer’s accounts to generate more commissions. That is illegal. However, if a new salesman works with the same customer, there will be new transactions, and it does not look like churning, but it generates commissions for the Broker Dealer.

The Broker Dealer has the superior position, and is really a competitor for the salesman.

Section 15a prohibits that kind of activity by FINRA, but the SEC allows FINRA to do it anyway.

With the Baby Boomers starting to retire, FINRA is eliminating the older salesmen as competition for their customers’ business. The younger, new recruits would have a wide-open field to go after those abandoned clients. Without a securities license, these older salesmen could not work with their existing clients on securities problems, and the customers would have to find another salesman.

Since I was a victim of this illegal activity, I complained to all 5 SEC Commission members. However, neither Mr. Cox nor anyone else at the SEC responded to my complaint.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

5.B. Antitrust Violations Selling Agreements

FINRA also polices the Mutual Funds and Variable Annuities. Those businesses refuse to do business with anyone who is not a member of FINRA. FINRA will not allow any other Broker Dealer to compete with FINRA members. FINRA has no authority to do that, but the SEC allows them to do it anyway.

My company, A.C.E.S., is a properly registered Broker Dealer authorized by the state of Pennsylvania to sell Mutual Funds and Variable Annuities to Pennsylvania residents. However, I cannot get a selling agreement with any Mutual Fund or Variable insurance company. FINRA will not let me compete with its members and the SEC is aiding and abetting that crime!

I have been in the securities business for over 42 years - longer than most Mutual Funds and Variable Insurance products have existed. Whether I sell millions or just a few small accounts, my sales will help the sponsors of those products because they Are paid a percentage of all money under their management. Furthermore, with selling agreements, I could recruit other salesmen and produce even more sales. There is no practical, business reason for denying me a selling agreement.

Virtually 100% of all Mutual Fund and Variable Annuity sales are made by FINRA member Broker Dealers. In addition most of the Mutual Fund and Insurance companies have underwriter - affiliates who are members of FINRA. The Mutual Funds and Variable Insurance products are under the thumb of FINRA which is controlled by Merrill Lynch and the other Investment Bankers. They do not want me to compete with them outside of the regulatory arena which Merrill Lynch controls! Certainly the Pennsylvania Securities Commission could regulate the activities of my Broker Dealer, A.C.E.S. at least as well as the SEC and FINRA regulated Bernie Madoff!

This is a clear violation of Federal Antitrust laws.

Again, the SEC allows anything that makes the cash register sing for FINRA members.

Part 6. Enforcing Fiduciary Standards

6.A We do not have a Fiduciary Problem

Before Mary Schapiro became CEO of FINRA, there were about 200 disciplinary actions taken by the NASD against salesmen every year. Out of 660,000 salesmen, that record is astonishing! That is less than 3 one hundredths of a percent of all the salesmen being disciplined! 99.97% of all the salesmen were honest! Look at those salesmen who were disciplined, and you will find that almost all of them worked for the big Investment Bankers with more than 150 salesmen like Merrill Lynch!

We do not have a fiduciary problem, but we could do a much more thorough and uniform job of protecting the public with Fiduciary Standards.

6.B Talk is Cheap

Fiduciary Standards give Bureaucrats that warm fuzzy feeling that they have done their job, but it ignores the fact that nothing is impossible for the man who does not have to do it!

Read the suitability requirements which FINRA created for Variable Annuities (Rule 2821). Pretend that you are a salesman sitting across the table from a customer. Now tell me specifically what are you supposed to tell the customer in order to satisfy those requirements?

Such vague requirements are unenforceable in a court of law because they are vague. Furthermore, they violate the spirit of the Ex Post Facto clause in the Constitution, by allowing some bureaucrat to come in after the fact and specifically define what the salesman should have done.

In order to achieve an effective set of Fiduciary Standards, you have to express the concepts, and then write the specific instructions that the salesman must satisfy. You have to create Point of Sale documents for the salesmen to use and enforce the use of those forms.

The specific forms tell the salesman what he has to present to the customer. They relieve a lot of tension because they provide a safe harbor for the salesman. From time to time, the specific instructions can be modified as a result of experience. However, with a specific set of instructions for the salesman, you protect the public as well as possible in a reliable, enforceable, uniform manner.

If you want to know what is wrong with a product, ask a competitor. In an open regulatory forum, you can construct a Point of Sale form for every product, clearly informing the public of relevant facts at the time when the purchase decision is being made. Point of Sale forms were proposed for the securities industry in the 1990s but they never can into existence.

6.C Two sides of the same coin

Everyone thinks of the public as the victim, and the salesman as the villain, but that contradicts reality. People do not trust salesmen, and do not share all their personal information with the salesman. People do not understand Financial Planning, so they do not appreciate the reasons why the salesman needs to know all that information in order to properly advise them.

At the same time, an amateur salesman does not want to distract the customer with facts which defeat his sales proposition. By forcing the salesman to use Point of Sale forms, you know that the customer will be told the important facts at the time the decision is being made. You also know that the customer is aware of all the real facts about his personal financial situation, and can easily recognize how some material fact will affect his situation even if the salesman is unaware of the situation.

A professional salesman will put the point of sale form right in front of the customer, and address each point saying this is bad, but it will not affect you because…. As a result, the customer will feel more confident that he has been properly informed, and is making the right decision; the salesman will have his safe harbor; and the salesman will get the sale!

Let everyone in the Financial Services Industry comment on the Point of Sale Forms, and the competitive nature of the business will bring out all the dirt on each product so that the public is properly informed.

Part 7. Regulation of Banking and Insurance

7.A. You and the American people are being played by Merrill Lynch and the other Investment Bankers who want to steal the Baby Boomers’ retirement business!

The oldest of 76 million Baby Boomers started to retire in 2008. Each one had an average of net worth of $250,000. If Merrill Lynch gets its hands on that money, those accounts will generate a lifetime of commission income for Merrill Lynch. If the Insurance industry gets the money, it is a one-time commission payday, and the gravy train is gone!

That is why Henry Paulson, Christopher Cox and Mary Schapiro orchestrated a massive smear campaign against the Insurance industry. All three of them come from the Investment Banking industry, and they represented Merrill Lynch’s best interests, not the public’s best interest.

We need Federal regulation of both Banking and Insurance comparable to the Securities Commission because the states are not capable of doing the job. Furthermore, the public is not really protected when different states have different rules.

Basically you cannot give good financial advice without selling some Securities, Insurance, and Bank products. There can be no doubt that there would be lower costs, fewer delays, and less frustration for the professionals involved if there was one source of regulation for a particular kind of financial product, or licensing etc.

The 1934 Securities and Exchange Act is a perfect model for the Commissions that we need. Any time that money changes hands, and the only tangible property that the buyer receives is a piece of paper documenting the sale, that is a securities transaction which needs to be regulated. The nature of the product and its issuer determines who that regulator should be. We certainly do not want the SEC regulating everyone else for the benefit of Merrill Lynch.

There should be a commission regulating Insurance and another commission regulating Bank type products. As with Securities regulation, the people who are being regulated should be represented by a Self Regulatory Organization of their choosing. The Banks would want their own SRO, Insurance companies, Life & Health agents, and Property Casualty agents would each want their own SRO.

By contrast, FINRA was shoved down everyone’s throat. Given the chance Registered Investment Advisors, Fee Only Financial Advisors, and small Broker Dealers (less than 150 salesmen) would each prefer their own SRO so that they could get out from under Merrill Lynch’s thumb.

The Advantage of the SRO structure is that the SRO members pay all the enforcement costs, while the people and the Federal Government get what they need for free!

It is easier to create point of sale documents based upon the product, and then let an appropriate SRO enforce the relevant regulations. In an open forum, everyone would be able to contribute to the Point of Sale disclosure forms for a particular product. Competitors would have a special interest in the disclosures about their main competition.

7.B. Insurance Industry Disclosure Failures

7.B.1. Index Annuities

Index Annuities were interesting when they were created in the late 1990s. Unfortunately, the public has no meaningful way to evaluate what is really being offered. All the public knows is that they make money if the stock market goes up and lose nothing if the stock market goes down.

The Casinos in Las Vegas know the statistics, and the house never loses in the aggregate. With Index Annuities, the public does not know and cannot calculate the statistics on whether a particular Index Annuity will pay off for them. However, the Insurance Company knows! If you make 8% one year and lose nothing the next year, your net result for 2 years is an annual rate of return of 3.92305%. That is not what investors were expecting.

The Index history exists, and the payoff formulas can be replicated so that the customer can be told in a Point of sale form for each specific Index Annuity contract, that there is X% probability of a 3% return over the life of the contract: Y% probability of a 4% return etc. Then let the public decide.

7.B.2. Pension Maximization

Public employees especially have defined Benefit pensions. When they retire, they can choose the Single life or the Joint life benefits. Most people choose the Joint benefit because the surviving spouse is protected with a guaranteed income. With the single life benefit, the surviving widow gets nothing from the pension plan!

An Insurance agent can make a lot of money if he convinces the employee to take the single life benefit which is higher, and then purchase a life insurance policy on the employee’s life so that when the employee dies, the widow has money for her retirement.

It all sounds logical until you realize that no one can predict what the widow’s lifetime income benefit will cost. That benefit is an Immediate Annuity, and those rates change as mortality and interest rates change. Almost always, the widow will not have the as much income under Pension Maximization as the Joint benefit would have guaranteed.

7.B.3. Life Insurance Retirement Plans

Life Insurance is also a tax shelter as long as the life Insurance policy remains in force. ( i.e. the premiums are paid) The standard illustration shows how a series of withdrawals and policy loans produces a stream of tax-free income from a life insurance policy for 15 years. As you stretch the illustration to 20 years or more, there is not enough cash value remaining in the policy, and the policy collapses. Then all those withdrawals and loans become taxable, and you have no more income.

Anyone could live to be 100. The failure of the life insurance policy would be obvious if the illustration went to age 100. However, the agents do not show that illustration, and the public does not know enough to ask for it.

Part 8. Accountability - Consumer Protection Agency

As Mr. Bernacke suggested to Congress, there needs to be clear responsibility and accountability in the regulatory process. Experience with the SEC has shown the regulators can be bought. The only way you can protect the American people is to have a Watchdog over the Regulators. That would be the Consumer Protection Agency.

The Consumer Protection Agency would establish the criteria for protecting the public through the regulatory commissions, and would be judge and jury in monitoring the performance of those regulatory commissions. The Self Regulatory Organizations would bear the burden and cost of policing their professionals, and the regulators would oversee their performance.

The states do not have the manpower to police the financial services industry properly, but they are closer to the public than the Federal commissions or Congress we would be. The states would be more likely to hear about abuses that need attention. It would be better if the Consumer Protection Agency would act more like a referee with the states as prosecutor for consumer complaints, the Regulatory Commission and the SRO as Defendants. After the debate in the Consumer Protection Agency, the states would vote like a jury and decide what changes the regulatory commissions would have to make in order to address the issues.
Part 9. 401(k) plans are hurting employees

Employers pick the 401(k) plan that keeps their plan administrative costs low. Usually, the employee gets few choices and those choices are often not the best investment choices. These employees are being hurt because the Employer has limited their options.

Other employees are hurt because they are terrified about investing. They need advice, but the Employer should not have to pay for that individual benefit.

The solution to both problems is to allow employees to “Transfer” their Pension Plan assets to other IRA accounts even while they continue to work for the same employer. In that way, each employee can get what they need or want, and they pay the costs - not the Employer.

Part 10. A better IRA

There are 2 problems with the current IRA structure:

A. Moving the money from the paycheck to the IRA.

B. Saving enough money

10.A. Employer IRA Payroll Deductions.

Everyone already has the option of contributing to an IRA, but many do not. People are better able to save if their employer deducts the money from their pay before they get their paycheck. The only way to fix that problem is to require all employers to provide payroll deductions. That would involve some cost. However, if it is mandatory, some bookkeeper will find a way to provide that service at an affordable price. It could be a hardship with an employer who has only 3 employees, but that depends on other facts.

10.B. IRA Contribution Limits

The other problem is that people cannot save enough towards their retirement because there are limits to IRA contributions. The laws which limit contributions were written to prevent someone from abusing the tax advantages of IRAs. Now people are starting to realize that the limits make it impossible to accumulate enough retirement savings.

The average American household income is $41,000 per year. If that household were to retire today, they would need $1,315,416.70 in order to reproduce their lifestyle in retirement. That amount guarantees $41,000 per year plus 3.1% increases every year to offset inflation.

The solution to this problem is a Target Benefit IRA.

There is a hybrid Pension Plan form called a Target Benefit plan. The purpose is to target a specific amount of retirement benefit based upon the employees’ current earnings. The actuary determines the actuarial cost for the benefit, and then determines this year’s employer contribution to fund that benefit.

Basically, the actuary projects the current assets and a stream of current and future contributions at a specific rate of investment return in order to determine how much this year’s contribution must be in order to meet that future benefit obligation. All that mathematics could be reduced to a 3column table based upon a person’s age so that anyone with an 8th grade education could apply the numbers in the table and the 3 step formula to his current earnings, and determine his allowed IRA contribution.

All the factors which control the formulas would be controlled by the IRS and Congress. This formula would allow people to contribute more than the current limitations, and probably more than they could afford to save. However, it would also allow a small businessman with a windfall profit in one year to put that profit towards his retirement instead of taxes. The taxes will be paid later.

Part 11. Closer Scrutiny of Regulated Institutions

Every business day, a Mutual Fund must value all of its assets, and calculate its net worth. Banks, Insurance companies, and Broker Dealers must meet certain required minimum net capital requirements. Every business day Banks, Insurance companies, and Broker Dealers should be required to electronically report their assets and net worth so that the regulators have a clear picture of the institution’s financial situation. The regulators will be able to spot trends and problems as they evolve, and before they become a problem which cannot be solved easily.


There are a lot of problems with the financial services industry which can be solved with a straightforward work effort. We have to clean house at the Securities and Exchange Commission. We have to establish new regulatory commissions for Banking and Insurance so that regulation of Financial Services moves into the 21 st century. More important we have to go back to the Proactive stance of earlier regulation. Unfortunately, I know that it is not as easy to fix everything as it sounds.

Your Administration inherited a lot of problems, but that is probably the reason you were elected. I like your effort on Healthcare reform. I would like to see that same kind of effort on the financial issues that I have described.

Thank You,
Lee Feldman