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What We’re Reading This Week

Robo-Advising

TradeMasters USA, LLC is facing action from the Commodity Futures Trading Commission. According to the Commission, TradeMasters marketed membership to an online trading software that was “automated” to the extent that you could “set it and forget it” and make as much as 300% by trading commodity futures on their algorithm. It was a great premise except none of it was true. The returns that were advertised came from a testimonial from a “real customer” that turned out to be a “paid actor” that was “full of crap.” Besides not generating 300% the robo-advisor turned out to not even be a robot. The program was an off the shelf trading platform rebranded by TradeMasters that required a fair amount of user input. Also, for a monthly coaching fee, the owner of the company would “coach” users on how to choose what markets to trade, how much to trade and how to get out of a trade due to a loss or gain. This is great not only because it’s not a robot, but because this isn’t the first time a “robo-advisor” has marketed its human element under false pretenses. The business model is old – pay this really smart guy to teach you how to get rich quick in the market. The basis of the sales pitch is that the guru made money and now wants to spend time teaching instead of continuing to make money in the market. This sort of thing mostly appeals to a segment of the population that believes the stock market and finance in general is some sort of magic trick. These aren’t real numbers, but if I looked at the finance shelf in a book store I would guess that roughly 40% of the titles have the word “secret” in them. But everyone is getting into the robo-advising game, including 2 bit hucksters. It’s an exciting time to be alive.

Goldman Sachs

So, Goldman Sachs launched an online retail bank and the results have been…interesting. Probably only to people like me, that have a retail banking background. Because of new regulations, banks have been reaching for new revenue sources. Goldman has never really been able to make the leap to retail consumers but most recently, they decided to change the retail bank’s name to Marcus. The goliath investment bank is attempting to connect with the common man and emulate small tech startups by eschewing the long standing tradition in finance of using the names of two old, rich, white founders (Morgan Stanley, Merrill Lynch, Raymond James, etc.) and choosing a folksy, simple name. I mean, sort of…Marcus is still the name of a founder, Marcus Goldman. I guess Joseph Sachs should feel bad about that? Banks have faced a tremendous PR nightmare since the financial crisis with Rolling Stone referring to Goldman as a “great vampire squid wrapped around the face of humanity.” But this is a new company, this is “Marcus.” They are humble and friendly and definitely not a vampire squid.

Insider Trading

There has been no shortage of insider trading prosecutions in recent years, but frustratingly, there have been plenty of insider traders that have not been prosecuted. When is insider trading insider trading? When is it a crime? When do you get prosecuted? When do just pay a fine? Peter Henning at The Times wrote a nice article about this dilemma. He reviewed several cases that have similar data points and attempts to draw some conclusions. This is difficult. Sometimes these cases are handled by the SEC, who usually just charge a fine, while others are handled by the Justice Department who levels civil charges and occasionally criminal prosecutions. Insider trading is already a murky, gray area of the law because no actual law exists prohibiting it. In relation to an insider trading case I once wrote, “If you’re stuffing money in a gym bag, you’re doing something bad, so don’t do it.” Essentially, insider trading is bad even if it can’t be clearly defined. If you’re not sure what you’re doing is insider trading that may be your first clue that you might be prosecuted.

 

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