Betterment

Betterment LLC has begun to offer clients the opportunity to work with certified financial planners as part of its online platform.  The article is called “Humans Are Coming for the Robots’ Jobs at Betterment.” With so many so-called “Robo-Advisors” fighting for market shares, I had to laugh a little. I support the trend of computers building strategic portfolios to replace advisors, at least for investors with limited resources. Why pay a flesh and blood broker 1%-2% to do what a computer would do for .20%? Still, I can’t help but get a warm, fuzzy feeling when I think about companies firing staff as they replace them with trading computers only to hire them back later to work with clients on a financial plan. It’s a real investment ouroboros. Let’s call it a Robo-boros.

Bond Fraud

In the past, I have written accounts of Jesse Litvak, who may or may not have committed fraud while selling bonds to clients of Jeffries LLC. Readers will recall that Litvak lied about how much he paid for bonds in order to get customers to pay a higher price. He was convicted, but won an appeal based on the “everyone else is doing it” argument. Last week he was found guilty on 1 of 10 counts. The crime of which he was convicted involved forging documents to show that he paid more than he did for a debt security. Essentially the precedent has been set. Verbally, you can lie to bond buyers, but you can’t put it in writing. Telling someone you paid more than you did isn’t necessarily material to the decision to buy, but showing them evidence that you paid more is material…I guess. One interpretation of this very arbitrary outcome stems from our justice system. Institutional bond sales among large corporations and trusts are a fairly nuanced and unique transaction. To ask a jury of laypersons to interpret what is an acceptable and unacceptable practice is asking a bit much. It’s also the best legal system we’ve been able to come up thus far. For those of you that feel strongly about Litvak’s guilt, it may give you some comfort to know that when it comes to white-collar crime 1 count out of 10 is not much better than 10 counts out of 10. 

Jeffries

It’s not all prison and fraud over at Jeffries these days. Apparently, they also have some things going on in their favor, maybe. Five Credit Suisse bankers are being sued to the tune of $10 million on the basis that they backed out of pre-employment contracts. To illustrate what happened I will tell a story. One of my wife’s friends recently went to a competitor and got a great job offer. Then she took that offer to her current employer to get a similar/better offer. She got the offer and is staying with her current employer. This sort of thing is stupid (in my opinion), but also very common. It’s stupid because the outcomes range from uncomfortable to horrible. Well this is exactly what happened with the Credit Suisse guys and Jeffries. Except Jeffries knew this might happen and made them sign contracts saying they would pay Jeffries money if they didn’t accept the job offers. My wife’s friend went to her current employer with a verbal offer of something better, not a signed contract saying she had to go work somewhere else. You have to wonder, “What the heck these guys were thinking?” What were they thinking when they signed the contracts and what were they thinking when they showed the contract to their employer? Finally, what were they thinking when they decided to stay at Jeffries?

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