Independent Fiduciary Consultant, Economics and Financial Ethics

One who intends to leave others better off for his having existed.

8/30/14

"Central Banks Trade S&P 500 Futures"

http://www.zerohedge.com/news/2014-08-30/its-settled-central-banks-trade-sp500-futures

"...The purpose of this Program is to incentivize Central Banks located outside of the United States to trade the products listed below on the CME Globex® Platform. The resulting increase in liquidity in the products listed below benefits all participant segments in the market...

The Exchanges’ staff identified the following Core Principles as potentially being impacted; Prevention of Market Disruption, Execution of Transactions, Protection of [the biggest] Market Participants and Compliance with Rules and Record Keeping.

...The Exchanges’ market regulation staff will monitor trading in the Program’s products to prevent manipulative trading and market abuse.

Would love to see the compliance file.





Product Scope; All CME, CBOT, and NYMEX futures and options contracts available for trading on the CME Globex Platform, and all COMEX futures products available for trading on the CME Globex® Platform (“Products”).

Eligible Participants

There is no limit to the number of participants that may participate in the Program.

All non-U.S. central banks may apply for participation.

Start date is July 1, 2013. End date is December 31, 2014.

The Exchanges shall monitor trading activity and participants’ performance"...

Meaning the Exchanges know how much of what 
has been traded by whom, and when.

http://www.cftc.gov/stellent/groups/public/@rulesandproducts/documents/ifdocs/rul012914cmecbotnymexandcomex1.pdf


http://sirt.cftc.gov/sirt/sirt.aspx?Topic=TradingOrganizationRulesAD&Key=28693

8/29/14

"SEC is ‘weak’ on enforcement — says one of its commissioners"

"The Securities and Exchange Commission has received its share of criticism for not properly policing markets. But lost amid headlines Thursday was a damning indictment from inside the agency.

[Securities and Exchange Commissioner] Luis Aguilar wasn’t willing to go along with a settlement against Kevin Kyser, the former chief financial officer of Affiliated Computer Services.

Aguilar pointed out that... Kyser himself knew what ACS was doing, was responsible for false and misleading public filings, highlighted the misleading revenue growth in earnings releases and analyst calls, failed to ensure ACS adequately disclosed the significance of these calls, signed false certifications and received an inflated bonus.

But Kyser, a CPA, wasn’t charged with fraud, Aguilar lamented.

               "Beyond this particular matter, I am concerned that the Commission is entering into a practice of accepting settlements without appropriately charging fraud and imposing Rule 102(e) suspensions against accountants in financial reporting and disclosure cases.  I am also concerned that this reflects a lack of conviction to charge what the facts warrant and to bring appropriate remedies.

                I am concerned that this case is emblematic of a broader trend at the Commission where fraud charges—particularly non-scienter fraud charges—are warranted, but instead are downgraded to books and records and internal control charges.  This practice often results in individuals who willingly engaged in fraudulent misconduct retaining their ability to appear and practice before the Commission.

                 I fear that cases in the future will continue to be weak.”

http://blogs.marketwatch.com/capitolreport/2014/08/29/sec-is-weak-on-enforcement-says-one-of-its-commissioners/
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 "S.E.C. Commissioner Rebukes His Colleagues

The Securities and Exchange Commission is the regulator that is supposed to crack down on executives who put misleading and fraudulent numbers into their financial filings.

But Luis A. Aguilar, a commissioner at the S.E.C., said on Thursday that he was concerned that the agency’s stance in such cases might be weakening. Mr. Aguilar made his comments in a surprising dissenting statement that sharply criticized an enforcement action against two senior executives who worked for an information technology company called Affiliated Computer Services.

...Mr. Aguilar also said that the S.E.C.’s enforcement orders may sometimes be “purposely vague and/or incomplete, and written in a way so as to lead the public to conclude that no fraud had occurred.” This, he added, “muzzles my voice by not allowing any statement by me (including this dissent) to include a fulsome description of facts that support the view that the commission should have brought fraud charges.”

Mr. Aguilar also cited figures showing that the S.E.C. has been bringing fewer financial disclosure cases in recent years and securing fewer executive suspensions in such cases..."

http://dealbook.nytimes.com/2014/08/29/s-e-c-commissioner-rebukes-his-colleagues/?_php=true&_type=blogs&_r=0

8/28/14

"Active managers take 100% of your gains"

"...During the 1980s and 1990s, nobody quibbled over a fee of 2% when stocks put on 18% a year. Since 2000, ...returns have averaged just 4%.

A fee of 1% is now quite a burden, a quarter of your return straight to the pockets of active managers.

...It isn't that low-cost index investing is an option you should consider. Rather, it's fast becoming the only way to invest that makes mathematical sense at all.

...Since the index investor gets the market return at the market level of risk, active managers must outperform consistently to overcome the down years they experience, times when their strategies fall out of favor.

But let's assume they do that. And let's assume that the active fund somehow beats its benchmark by 0.5%, year after year. Even so, Ellis explains, such a fund charging 1.25% in fees and a 12b-1 fee of 0.25% as a percentage subtracted from assets is in fact asking the retirement investor to accept a constant 75% hit on the return.

...The fund beats the market for years (one hopes) and, even so, you get just a quarter of the gains and they keep three-quarters of it.

Because a majority of active managers now underperform the market,
their incremental fees
are over 100% of the long-term incremental, risk-adjusted returns.

Charley Ellis

...Once, institutional investors such as banks and insurers were behind less than 10% of trades and individuals did more than 90%. Beating the market wasn't just possible, Ellis contends, it was "probable for hardworking, well-informed, boldly active professionals."

Those days are gone. "Now, more than 95% of trades in listed stocks and nearly 100% of other security transactions are executed by full-time professionals who are constantly comparison-shopping inside the market for any competitive advantage," Ellis writes.

...That the investing industry continues to promote active management raises real ethical questions, Ellis maintains, questions that retirement investors would be wise to raise with their own advisers."

http://www.marketwatch.com/story/charley-ellis-active-managers-take-100-of-your-gains-2014-08-28?page=2

8/27/14

Greensboro Councilman Tony Wilkins on Heritage House; Read the Comments

https://www.facebook.com/tony.wilkins.94/posts/10202785796066977?notif_t=comment_mention

"Keeping Corporate Lawyers Silent Can Shelter Wrongdoing"

"...Ms. [Maritza I.] Munich was a Walmart lawyer who advocated an aggressive response to investigating the scandal but has been silenced by Walmart, which has invoked the attorney-client privilege to keep her from speaking.

It’s yet another example of how companies use the attorney-client privilege to shelter potential wrongdoing, perhaps to the detriment of many people, including shareholders.

But Ms. Munich may yet have her chance to talk. A recent Delaware court decision may not only allow Ms. Munich to talk about what happened at Walmart, it may give shareholders of all companies a way to sidestep the attorney-client privilege when wrongdoing takes place.

Ms. Munich was the general counsel of Walmart’s international division when Walmart discovered that its employees might have been involved in a sweeping bribery operation in Mexico.

The full details are not known, but according to documents disclosed..., Ms. Munich led the bribery investigation as it unfolded in 2004.

Yet she was stymied in both that investigation and others.

It appears that she argued in 2004 for a fuller investigation into Walmart’s possible misconduct in Mexico and against any executive interference.

She was ignored.

...Ms. Munich resigned in 2006 in the middle of Walmart’s investigation into its Mexico operations. After a few weeks, the investigation was buried by the general counsel of Walmart’s Mexico operations, a man later implicated in the scandal...

...Walmart has asserted that attorney-client privilege. The deliberations of Ms. Munich and others have been guarded as confidential by Walmart.

...Walmart has maintained that not only does the privilege bar its lawyers from speaking, it prevents their documents from being used in court, even if they are disclosed inadvertently.

...That is where things stood until a recent Delaware decision.

The Indiana Electrical Workers Pension Trust Fund, a Walmart shareholder, has taken steps to investigate the Walmart bribery matter to decide whether directors engaged in any wrongdoing.

Robert K. Steel served as a director of Wachovia, President and Chief Executive Officer
from July 9, 2008 to December 31, 2008

As part of this suit, the pension fund issued a demand for documents that Ms. Munich had written that were either confidential or had been leaked but could not be used in court because of the privilege. This type of demand is allowed under corporate law to permit shareholders to determine whether wrongdoing has taken place.

George Hartzman was a Wachovia shareholder
from July 9, 2008 to December 31, 2008

Walmart denied the request, asserting the attorney-client privilege, among other things.

But the Delaware Supreme Court refused to side with Walmart and apply the privilege. Instead, the court said there was an exception to the privilege rule for shareholders. The court also ruled that “the allegations at issue implicate criminal conduct” ...and that the pension fund was a legitimate stockholder. Accordingly, the information “should be produced by Walmart pursuant to [an] exception to the attorney-client privilege.”

...Yet, unless a whistle-blower steps forward, the principle remains strong...

The result is that companies have a great incentive to shift anything hinting at legal trouble to their in-house counsel to ensure that it is protected from disclosure. The in-house legal department thus becomes the “cover-up and damage control” arm of the company.

And so we have a strange situation in which the privilege applies, to be used by companies, unless someone steps forward under a whistle-blower provision...

In this light, the Delaware case is yet another chip in the attorney-client privilege, a sensible one perhaps.

The privilege is important because it allows for people to freely discuss their problems and receive good legal advice. But in the corporate context, it has always been an uneasy mix because the company is owned by its shareholders. If the corporation is doing wrong, the shareholders are the ones who are harmed when they bear the costs. The Delaware court decision sides with shareholders on this matter, allowing them to be the ones to decide whether there is wrong.

...the court decision still requires that the shareholders keep what they find confidential unless the privilege is waived. For now, they can use the information only to decide whether to pursue a claim against the directors of Walmart for failing to adequately supervise the Mexican operations..."

Steven Davidoff Solomon
Professor of Law, University of California, Berkeley
August 26, 2014
http://dealbook.nytimes.com/2014/08/26/keeping-corporate-lawyers-silent-can-shelter-wrongdoing/?_php=true&_type=blogs&partner=socialflow&smid=tw-nytimesbusiness&_r=0

Previously;

An Open Letter to Wachovia and Wells Fargo Current and Former Shareholders 

http://hartzman.blogspot.com/2014/04/an-open-letter-to-wachovia-and-wells.html

SEC Whistleblower Evidence

http://hartzman.blogspot.com/2013/02/sec-and-finra-whistleblower-evidence.html

On December 8, 2011, I became a participant in an investigation of what looked like fraud on Wachovia's shareholders

http://hartzman.blogspot.com/2013/05/on-december-8-2011-i-became-participant.html


Winston Salem Journal; "Robert Steel, Wachovia executive caretaker, lands new job "

http://hartzman.blogspot.com/2014/05/winston-salem-journal-robert-steel.html

Perella Weinberg CEO Robert Steel's Securities Fraud and Insider Trading at Wachovia

http://hartzman.blogspot.com/2014/05/new-perella-weinberg-ceo-robert-steels.html

FINRA, SEC, DOL, CFPB, FTC, FRB, and PCAOB Wells Fargo Whistleblower Filing

http://hartzman.blogspot.com/2012/10/finra-sec-dol-cfpb-ftc-frb-and-pcaob.html

"Wachovia engaged Perella Weinberg" under Robert K. Steel

http://hartzman.blogspot.com/2014/06/wachovia-engaged-perella-weinberg-under.html

8/24/14

"The Rise of Corporate Impunity

"...American financial history has generally unfolded as a series of booms followed by busts followed by crackdowns. After the crash of 1929, the Pecora Hearings seized upon public outrage, and the head of the New York Stock Exchange landed in prison. After the savings-and-loan scandals of the 1980s, 1,100 people were prosecuted, including top executives at many of the largest failed banks. In the '90s and early aughts, when the bursting of the Nasdaq bubble revealed widespread corporate accounting scandals, top executives from WorldCom, Enron, Qwest and Tyco, among others, went to prison.

The credit crisis of 2008 dwarfed those busts, and it was only to be expected that a similar round of crackdowns would ensue. In 2009, the Obama administration appointed Lanny Breuer to lead the Justice Department's criminal division...

But the crackdown never happened. Over the past year, I've interviewed Wall Street traders, bank executives, defense lawyers and dozens of current and former prosecutors to understand why the largest man-made economic catastrophe since the Depression resulted in the jailing of a single investment banker — one who happened to be several rungs from the corporate suite at a second-tier financial institution.

...In the mid-'90s, white-collar prosecutions represented an average of 17.6 percent of all federal cases. In the three years ending in 2012, the share was 9.4 percent.

...the fact that the only top banker to go to jail for his role in the crisis was neither a mortgage executive (who created toxic products) nor the C.E.O. of a bank (who peddled them) is something of a paradox, but it's one that reflects the many paradoxes that got us here in the first place.

...From 2004 to 2012, the Justice Department reached 242 deferred and nonprosecution agreements with corporations, compared with 26 in the previous 12 years...

...President Obama's Fraud Enforcement and Recovery Act, which was designed to give hundreds of millions to prosecute financial criminals, was able to deliver only $65 million in 2010 and 2011. Prosecutors reporting to Breuer proposed setting up a mortgage-fraud initiative, a "Prosecutorial Strike Force," as one July 2009 memo put it, but the Justice Department dithered. Finally it set up the Financial Fraud Enforcement Task Force, an enormous coordinating committee with essentially no investigative operation. One former Justice Department official derided it as "the turtle."

...A top Treasury Department official told Breuer, in carefully couched language, that an indictment could cause broader problems in the financial system. Breuer even went as far as discussing whether banks were too big to indict with H. Rodgin Cohen, a partner at Sullivan & Cromwell, who was representing HSBC in his very own case. Cohen told Breuer that while the Justice Department can't have a rule not to indict a large bank, prosecutors should, well, take into account how the target has cooperated and what changes it has made to fix the problems.

It would be easy to blame the Justice Department's ineptitude on past mistakes alone. But again, the very ambitions of its prosecutors played a prominent role. Top governmental lawyers generally don't want to spend their entire careers in the public sector. Many want to score marquee victories and avoid mistakes and eventually leave for prominent corporate firms with starting salaries at 10 times what they make at the Department of Justice. According to numerous former criminal-division employees, Breuer almost immediately signaled his interest in bigger things. In October 2009, Steven Fagell, his deputy chief of staff and former Covington colleague, sent an email to the division. "Do you like giving toasts? Do you think it should have been you accepting the writing Emmy for '30 Rock?'" Fagell wrote. "If so, we need your wit, smarts and gift for the written word! We're putting together a speechwriting team for the assistant attorney general." Prosecutors developing cases against Mexican drug cartels and Al Qaeda members found it more than a little tone deaf. (Fagell says the email request was intended "both to foster internal morale and to send a message of deterrence to the public.")

...several former prosecutors in the office told me that going after bankers was never a real priority. "The government failed," another former prosecutor said. "We didn't do what we needed to do."

...the Justice Department never aggressively pursued what may have been the most promising angle. On Sept. 10, 2008, the chief financial officer of Lehman Brothers, Ian Lowitt, told shareholders and the public that the bank had $42 billion of available cash, or liquidity. The bank's position, Lowitt reassured, "remains very strong." Lehman would file for bankruptcy five days later. "What they were saying was not just wrong but materially wrong," Robert Byman, a Jenner & Block partner, told me.

...Of those billions, $15 billion was in the "low" category, generally because it had been pledged as collateral to other banks. One former Lehman executive told me that several other company managers understood that they could not tap much, if any, of that encumbered money. And at least two executives objected to how the bank was representing its liquidity, including its international treasurer, Carlo Pellerani, according to the Jenner & Block report. The law firm found that regulators, credit-rating agencies and Lehman's outside lawyer had no idea that the liquidity pool wasn't, in fact, all that liquid. When Lowitt came to talk to Jenner & Block, he explained that he had not fully understood the issues when he assured investors of its liquid assets. That may be a reasonable defense, but it does not appear that prosecutors and federal investigators made a serious attempt to test how much Lehman's chief financial officer knew about his own books. Three Lehman executives and one regulator at the Federal Reserve, all of whom were involved in the bank's desperate attempts to keep itself liquid, told me they were never even interviewed by any federal-government officials.

...Federal prosecutors have their own explanation for how only one Wall Street executive landed in jail in the wake of the financial crisis. The cases were complex to investigate and would have been infernally difficult to explain to juries, some told me. Much of the crisis and banker transgressions stemmed from recklessness, not criminality. They also suggest that deferred prosecutions — with their billions in settlements and additional oversights — can be stricter punishments than indictments.

...Federal prosecutors almost never bring criminal charges against top executives of large corporations, from banking to pharmaceuticals to technology..."

http://www.propublica.org/article/the-rise-of-corporate-impunity

"There Is Still Such a Thing as 'Too Big to Jail' / "Do Big Banks Have a `Get Out of Jail Free' Card?

"...the reason we know there is such a thing as "too big to jail" is that [US Attorney General Eric] Holder felt compelled to say there isn't.

It should be a given in the U.S. that no person or corporation is above the law. But the evidence to the contrary has been overwhelming. The Justice Department has entered into at least 20 non-prosecution and deferred-prosecution agreements with large financial institutions since 2009. Poor people who commit crimes aren't shown such leniency. Nor has the Justice Department hesitated to bring criminal charges against big companies in other industries.

Consider what Holder told the Senate Judiciary Committee in March 2013, when asked to explain the lack of criminal charges against large banks over offenses that include fraud, terrorist financing and money laundering.

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy," Holder said. "And I think that is a function of the fact that some of these institutions have become too large."

"It has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate," he said.

...As my Bloomberg View colleague Paula Dwyer wrote at the time, he committed a Kinsley gaffe: He accidentally spoke the truth.

...Holder, in his video, suggested that a major difference between the department's approach now and a few years ago is ... "Rather than wall off banks from prosecution, the potential for such severe consequences simply means that federal prosecutors conducting these investigations must go the extra mile to coordinate closely with the regulators that oversee these institutions' day-to-day operations," Holder said. "So long as this coordination occurs, it is fully possible to criminally sanction companies that have broken the law, no matter their size."

That part of what he said is true. I've said the same thing myself. It also is an acknowledgement that large, felonious banks will always receive special treatment. The Justice Department is willing to let the chips fall where they may for little people, but not for big banks. For big banks, prosecutors must go the extra mile. We're long past the days when prosecutors used to say, "Let justice be done, though the heavens fall."

http://www.bloombergview.com/articles/2014-05-06/there-is-still-such-a-thing-as-too-big-to-jail
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Do Big Banks Have a `Get Out of Jail Free' Card?

U.S. Attorney General Eric Holder's statement yesterday -- that some banks are too big to prosecute -- may have been a Kinsley gaffe: the kind of misstatement that accidentally reveals the truth.    

Justice Department officials for months have been denying that big banks are above the law. Then Holder told the Senate Judiciary Committee that the size of some large banks has made it difficult to bring criminal charges. He said "some of these institutions have become too large" and that their size "has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate." He added that bank size was something Congress would "need to consider."

It was quickly interpreted that Holder was giving too-big-to-fail banks a get-out-of-jail-free card. But I think Holder was making only a half-Kinsley. He was stating the obvious -- that criminal charges can threaten a bank's existence and endanger the U.S. or the global economy.

...Holder was responding to questions from Senator Charles Grassley, the Iowa Republican who, along with a growing number of senators in both parties, is especially critical of the lack of prosecutions against banks for their roles in the financial crisis.

...Sending top-ranked bankers to jail would be a more powerful deterrent than indicting a faceless corporation.

http://www.bloombergview.com/articles/2013-03-07/do-big-banks-have-a-get-out-of-jail-free-card-
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Banks Take the Economy Hostage
26 May 2, 2014 8:28 AM EDT
By Barry Ritholtz

...Former Federal Reserve lawyer Gil Schwartz warned “The mere threat of requiring a hearing could cause customers to lose confidence in the institution and could cause a run on the bank.”
U.S. Attorney Preet Bharara recounted the picture bankers painted if prosecutions occurred: “Oceans will rise; nuclear winter will be upon us; and the world as we know it will end.”

...It used to be thought that fear of indictment, personal disgrace and threat of jail would keep bankers from engaging in illegal activities. But the extraordinary intervention of the U.S. government and Federal Reserve changed the dynamics of prosecution.

...Prosecute our clients, said the bankers’ lawyers, and you risk destabilizing a fragile financial system. Put a systemically important financial institution in your cross hairs, and you put the entire global economy at risk.

The Bush and Obama administrations bought this line of reasoning.

This argument should never have carried the day. The job of a prosecutor is to prosecute, not to make economic forecasts. Convincing various governmental departments not to do their jobs was a masterful act of salesmanship, one that undercut fundamental principles of rule of law.

It isn't the role of the Justice Department, the Securities and Exchange Commission, or the U.S. attorney’s office to make assessments based on the forecasts of economists doing the bidding of their paymasters.

...For those charged with enforcing the law, it was an epic abdication of responsibility...

Ignoring fraud, perjury and other felonies was a colossal error of judgment...

As we noted last month, “The greatest innovation of the financial sector is not the ATM machine or interest-bearing checking accounts or securitization: It was convincing the powers that be that prosecuting them for their actual crimes would (once again) bring the economy to the edge of the abyss.”

...The statute of limitations is ticking and will soon place many of those responsible beyond reach. Justice denied makes it more likely we will be subjected to a future financial crisis.

http://www.bloombergview.com/articles/2014-05-02/banks-take-the-economy-hostage

"Wrecking an Economy Means Never Having to Say You're Sorry"

"...It’s a disgrace that the Justice Department has failed to bring a single criminal charge against any Wall Street or mortgage executive of consequence for their roles in wrecking the economy, despite having managed to make arrests in the comparatively piddling schemes of Enron and the Savings & Loan flimflam. (The latter resulted in more than 800 convictions, including those of many top executives.)...

...Not only has the Department of Jus­tice (DOJ) failed to build any criminal cases for financial-crisis misdeeds, but it’s also now settling with these banks without even filing civil complaints. A complaint is the cornerstone of civil litigation, the foundation for even routine lawsuits. One of its primary benefits—and of adversarial legal proceedings generally—is that a complaint can bring huge amounts of previously undisclosed information into the public record. In these mortgage securities cases, the Justice Department had not only an obligation but an opportunity: to show the country what it found, to deter future misconduct...

...by imposing a fine without documenting the underlying abuses, the Justice Department has permitted the banks, for a price, to bury their sins.

...in the current cases, in which institutions are accused of systematic wrongdoing with historic consequences, the government is letting banks discreetly settle out of court, as if the facts at issue were some kind of fender bender.

...Better Markets Inc., ...sued the Justice Department in an effort to block the J.P. Morgan settlement... The department’s response was unintentionally revealing. It submitted a motion to have the lawsuit thrown out, contending that it would require an “invasive inquiry into DOJ’s decision-making process.” In the department’s estimation, the aspects of its settlement process that should remain unknowable include:

    “The nature, scope, and thoroughness of DOJ’s investigation, including its duration and the number of documents reviewed and witnesses interviewed ...;

    “JPMorgan’s conduct, including the number, type, and content of its misrepresentations and when they occurred ...;

   ...we don’t get to know how many rocks DOJ looked under. Nor just what misdeeds it discovered at the bank...

...We know the banks are eager to put the scandal of the financial crisis behind them. What’s disturbing is that, in the name of deference, convenience, or something darker, the Justice Department is letting them do just that."

http://www.newrepublic.com/article/119002/justice-departments-wall-street-settlement-deals-are-shameful

8/21/14

Management fees eroding City of Greensboro retirement accounts

Some financial companies claiming to act in the best interests of their clients appear to act like parasites existing at the expense of their hosts. Like many packaged savings plans, it looks like the fine print in Greensboro’s 457 retirement plan costs more than its big print suggests.

A recent Center for American Progress study reported “the corrosive effect of high fees in many of these retirement accounts forces many Americans to work years longer than necessary or than planned” and a “seemingly small 0.75 percent fee difference could cost a worker almost $100,000 in fees over a lifetime.”

Forbes Contributor John Wasik cited research contending “the typical worker is able to achieve sufficient retirement income 69 percent of the time when fees are at 0.5 percent, 57 percent of the time when fees were 1 percent, 45 percent of the time when fees were 1.5 percent, and just 29 percent of the time when fees were 2 percent.”

As of 2012, there was $79 million invested by about 2,420 City of Greensboro employees in their 457 tax deferred qualified retirement plan, which is very similar to 401(k) or 403(b) retirement savings plans. A first glance at the City’s statement looked like Greensboro’s 457 plan participants were paying an annual fee of $143,292, or about 0.18%, which is clearly identified.

Greensboro’s 457 plan provider is the “non-profit” International City/ County Management Association Retirement Corporation (ICMA-RC).

ICMA-RC’s mission is to “help build retirement security for public employees” and whose “products and services are designed with the public employee in mind.” According to their web site, ICMA-RC handles more than $50 billion in assets.

ICMA-RC’s non-profit 2012 tax form states “The corporation provided plan administration, investment management, and retirement planning and investment education services to 4,839 state and local government employers that offer 9,257 retirement plans holding 1,056,358 public sector employee retirement accounts.”

ICMA-RC’s President/CEO/Director Joan McCallen’s 2012 reported compensation was $2,159,365. ICMA’s Executive Director Robert O’Neal only makes $345,126.

ICMA-RC’s website says they have a “license agreement with ICMA that allows ICMA-RC to use the association’s name” in exchange for “$400,470 to ICMA’s corporate account.” Both companies are housed in the same Washington, D.C. building.

The contract between the City and ICMA-RC says ICMA-RC can make money on the back end from City of Greensboro employee accounts with very little disclosure to employees. ICMA-RC appears to be charging relatively overpriced “retail” rates, where part of the fees can be “kicked back” to ICMA-RC from outside investment managers, as opposed to “institutional” rates, where most fees are usually clearly displayed and cost much less.

Based on information the City and ICMA-RC provided, I came up with a more realistic estimate including the fees masked within the underlying investments of somewhere between 0.96% and 0.98%, or about $788,920 per year taken from the City employee 457 retirement accounts.

In the summer of 2013, meeting with City staff while acting as a mayoral candidate, I spelled out how the $788,920 fee was $645,628 more than the $143,292 on their statement. That Greensboro’s fiduciaries would be aware of the underlying fees was relatively small, as the financial services industry has limited transparently reporting at the expense of those with money invested in retirement plans for decades.

About 49% of Greensboro’s 457 plan was invested in the VantageTrust Plus Fund, otherwise known as a Stable Value Fund. ICMA-RC’s web site says “The PLUS Fund’s investment objective is to seek to offer a competitive level of income consistent with providing capital preservation and meeting liquidity needs. Key goals are to seek to preserve capital, by limiting the risk of loss of principal and delivering stable returns.”

The overt fee reported on the statement the City provided suggested the fee for the VantageTrust Plus Fund was about $89,168. What the statement didn’t show was another 0.81% ICMA-RC was taking as a relatively covert $314,288, for a total of $403,456.

I proposed reducing total City of Greensboro 457 plan expenses by an estimated $572,328 per year, or about 0.7%, which would directly increase Greensboro employee balances in the plan by the same amount.

According the Securities and Exchange Commission’s Investor Compound Interest Calculator, paying 0.7% less over 30 years would increase participant account values by $18,504,396, if everything else remained the same.

In 2012, the U.S. Department of Labor implemented rules requiring fee disclosures for 401(k) plans, fiercely opposed with a massive lobbying effort by the financial industry. The end result was less than clear disclosures that many retirement plan investors still have a hard time figuring out.

Plans like Greensboro’s 457 for government employees remain exempt from the new transparency rules.

I believe the financial services industry and the U.S. governmental regulatory infrastructure are responsible for not acting in the best interests of consumers, as many retirement plan fiduciaries across the country continue to know not what they should.

http://yesweekly.com/article-18130-management-fees-eroding-city-of-greensboro-retirement-accounts.html

8/19/14

Heritage House Homeowners Association Check Issues and Proposal

The following Heritage House HOA check for $8,333.43 dated 11/30/2012, lists Vestal Property Management and is signed by what appears to be a Vestal family member.

The routing/account ID numbers at the bottom of the check are 054000030 and 5332645051.




The following Heritage House Homeowners check for $3,938.77 dated 12/27/2012, does not list Vestal Property Management and is not signed.

The routing/account ID numbers at the bottom of the check are 054000030 and 5332645051, which are the same for the 11/30/2012 Vestal check above.

The listed address on the 12/27/2012 check below is 614 West Friendly Avenue;



The following Heritage House Homeowners check for $3,850.00 dated 10/17/2013.

The routing/account ID numbers at the bottom of the check are 054000030 and 5332645051, which are the same for the 11/30/2012 and 12/27/2012 checks above.

The listed address on the check below is 614 West Friendly Avenue;


This information was furnished by Jeff Faith, a Heritage House homeowner, who received data and copies of checks written by the Heritage House Homeowner's Association to the City of Greensboro, as reported in today's News & Record.

The President of Association Management Group, Inc. (AMG), located at 614 West Friendly Avenue is Paul Mengert.

Per Nancy Vaughan, Paul Mengert and Don Vaughan jointly own 614 West Friendly Avenue via VM LLC.

http://taxweb.co.guilford.nc.us/CamaPublicAccess/PropertySummary.aspx?REID=0001770&pageIndex=2


Don Vaughan and Associates
612 West Friendly Avenue
Greensboro, NC 27401

I believe Don's office is on the left, and Paul's is on the right.

Per Nancy Vaughan, the Vaughan's have no ownership interest in AMG.

AMG, supposedly aka Heritage Homeowners, appears to share the same routing and account numbers on checks paid to the City of Greensboro, meaning there appears to be an indirect association in this mess between Don Vaughan and Paul Mengert.
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Proposal

Terminate any relationship with Heritage House and whoever the homeowners association management group is involved.

City Council votes to rezone Heritage House to be exclusively owner occupied, which should eliminate vagrancy issues as only homeowners, who tend to take care of their properties, will have access and will be required to live at the property.

City Council forgives the water etc... debt of the homeowners association, in exchange for owners who intend to occupy condos installing separate water meters so the water bill issues do not re-occur.

City Council uses the money allocated for Marty Kotis' incentive grant in Agenda Item 12 to pay down the Duke Power bill, after which hopefully Duke Power will forgive the rest what is owed in exchange for condo owners installing individual power meters so the issue doesn't arise for the whole building again.

Let's make Heritage House an oasis of home ownership, within a neighborhood of low income rental properties.

George Hartzman

8/16/14

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