Are you invested with a Financial Drug Dealer?

How can you tell?  They don’t or won’t talk about much less recommend low-cost passive index funds.  And they don’t or won’t talk about or own up to fiduciary responsibility verbally or in writing.  They may use esoteric terms (words to impress you, which they often fail to connect to your suitability and or implement) like tactical, strategic or opportunistic asset allocation or certain hedge fund strategies or private equity investments.


They often don’t understand the dangers of leverage in investments (stocks, futures and options),  insurance, annuities, strategies, financial statements, the stock or bond market (term used very lightly) or economy (even more so).

Here from Macro Business


Financial drug dealers love to talk rather than read prospectuses or private placements of the products and strategies they are supposed to know before recommending to you.

Instead they prefer to soothe you and wax in terms of “relationships” or “value” all the while extracting unnecessary fees from your account.  Fees are often (ultimately) the only reason a financial drug dealer will take time out of his and her busy day to talk to you, often a clue of arrogance.

If you are flying solo, there’s less to worry about – just you.  If however you are a trustee, then there’s a lot to worry about, starting with you knowing what a fiduciary needs to do.  Every decision you make or fail to make will likely be put under a microscope.  And if you have the family trust account with a financial drug dealer – your problems may only get worse.

If you feel intimidated by the “investment-ese” perhaps ask them this. 

“How do you carry out your fiduciary duty to my account?”

Flag – if you have had your trust, investment, IRA or pension account with the same person or firm – unless you are very careful about fees – there’s a risk you are being fleeced, perhaps for many years.  Financial drug dealers like to keep you around to feed their habit – fee, expenses and commissions extraction.


If you are invested in ANY active investment, insurance, annuity, asset protection or strategy there is a VERY good chance you and all of your advisers (legal, tax and financial) are working with a Financial Drug Dealer and like all drugs don’t fully understand the effects on your and others’ fiduciary duty.

If you are a trust, IRA or pension beneficiary make sure to send your dad this Father’s Day post.

Get clean – feel better – give your financial drug dealer the shaft.

Happy Father’s Day! 

For more information or (310) 943-6509

Copyright Chris McConnell & Associates 2014 All rights reserved

ap indy 3

The SPORT of kings, Dumb Ass Partner – why horse racing fans should be bank regulators

According to the NY Times, “a 36th year went by without another Triple Crown champion, and California Chrome joined 12 other horses who could not get to the finish line first in the Belmont Stakes. Greatness is not prophesied. It is earned here on the racetrack, and feel-good stories are not moved to the front of immortality’s line.”

Horse racing fans are a rare breed, they love and vigorously defend the SPORT.  The sport is as popular as it is worldwide, at root because of fair competitions.  Yet the owner of a losing horse,  Coburn, (though the horse, trainer who is 77 year old Art Sherman, jockey Victor Espinoza and owners kept us paying attention with an almost unforgettable Cinderella story for the past five weeks) now chooses to throw the most famous (and difficult) challenge of that sport under the bus.

Coburn’s comments:

“It’s all or nothing,” said Coburn, 61, who said he did not expect to see another Triple Crown champion under the current format. “This is not fair to these horses that have been running their guts out for these people who believe in them.” Then called for a number of rules changes to the Triple Crown series, and impressing us (not) with his stunning intellectual prowess, by informing us there are “three races and three points on the Triple Crown trophy.”

Of one thing we can all bet on and collect, if California Chrome won the Belmont Stakes there would have been no mention of the Triple Crown being unfair or calls for rules changes thereto.

The Belmont

Tonalist (named after the tonal style of painting), like AP Indy in 1992 did not run in either the Kentucky Derby or the Preakness, won the Peter Pan Stakes (a prep stakes on May 10th at Belmont) before winning the Belmont StakesThe Daily Racing Form chart shows Tonalist was sent off at 9 to 1, defeated ten other horses including the Kentucky Derby and Preakness winner, California Chrome, the 4 to 5 favorite who ran fourth in a dead heat, off the board.

Tonalist, as noted in the chart, did not have what any would describe as an “easy” trip; he was strung out four to five wide on the first turn (something that many lightly raced, fresh horses fail to overcome to win the race.)  California Chrome, let us not forget, was permitted by the NYRA stewards to race with a nasal strip; in 2012 I’ll Have Another was not allowed, however it became a moot point as he was scratched from that Belmont due to a leg injury.

I happen to have the saddlecloth worn by AP Indy in the Peter Pan, a gift from AP Indy’s groom whom I met at the 1992 Breeders Cup held at Gulfstream Park, a truly sporting gesture I will never forget.

Why is it called the Sport of Kings?

Dan Rosenberg provides as simple and good an explanation as I’ve heard.  Dan Rosenberg, owner of Rosenberg Thoroughbred Consulting of Midway, Ky., says an Englishman once told him the “Sport of Kings” reference is misleading.  “If you are playing tennis or golf or cards or any other sport against the king, you dare not win,” says Rosenberg “But your horse could beat his horse on the race track.”

Racing is not fair it’s a sport and it can be ironic

In a strange, weird twist of fate, according to USA Today, AP Indy is California Chrome’s great – grandsire, yet he skipped the Derby and the Preakness and won the 1992 Belmont, his seventh straight victory, defeating My Memoirs, Pine Bluff and the much heralded Strike the Gold, who was making a homecoming back to Belmont Park.  California Chrome’s father, Lucky Pulpit, was the son of Pulpit, who was the son of A.P. Indy, who later in 1992 won the Breeder’s Cup Classic, the richest race in North America with its $5 million purse, which I witnessed.

Dumb Ass Partner

What Coburn really meant to say (and for all of us to understand – we get it) is “the sport is not fair to me or my property interests.”  DAP (Dumb Ass Partners) were called “dumb asses” for spending $8,000 to purchase a mare, named Love the Chase and breeding her for $2,500 to Lucky Pulpit, the foal (their and the mare’s first) was California Chrome and they proved their critics very wrong.  However, the critics have been partially vindicated as Coburn himself proved that yesterday and today he is a Dumb Ass “Partner”.


USA reported before the Kentucky Derby, Mr Coburn made these remarks at a press conference:

But his statement was emphatic.  “With a good break and a clean trip, I think it’s a done deal. That’s just my personal feeling. That’s what I have right here (pointing to his heart). I think it’s a done deal,” Coburn, who lives in the Reno area, said at a press conference.

Steve Coburn can learn a lot reflecting on the meaning of the four letter word “R-A-C-E” as in a competition to determine a winner.  In horse racing especially (I’ve been a fan for over forty years, as a teenager worked summers on the backside as a hot walker at Monmouth Park, Oceanport, NJ; later at Apt-to-Acres, a very large, successful standard-bred breeding farm in Englishtown, NJ and been to all the Triple Crown races multiple times) there is what’s called “racing luck”.

It happens to one degree or another in EVERY race, and whether or not Steve Coburn chooses to accept reality – racing luck played a part in yesterday’s race.  And it played a part in the Kentucky Derby and the Preakness too, to his and his horse’ benefit.  (To be fair to the horse, California Chrome suffered a nasty gash above the hoof and ran behind horses, with dirt flying up in his face – a position he had never been successful in before and finishing fourth, beaten two lengths in the mile and half Belmont; still a purse money spot is a very credible performance.)

A NY Times reader wrote this – the simplest, perhaps best comment:

There was only one horse competing for the Triple Crown today, and for that title, he was competing with history. Was he greatness? A Triple Crown winner must be able to beat all comers to win that victory, whether they are spoilers or not. Greatness is great because it’s hard, it’s difficult, it’s exceptional.

Perhaps Coburn could use a drink (or two)

We invite Steve Coburn to take the edge off with a perfect cocktail from the SmartBar (see the 4 minute video) showing the first fully portable, self-contained, automatic, patented cocktail machine.

The only thing standing – times dos

California Chrome on Bleacher Report.  The only thing standing between him and a place alongside some of the best horses ever is the 12-furlong endurance test known as the Belmont Stakes.

The President to bankers, April 2, 2009.  President Obama to certain Wall St bankers, April 2, 2009 as reported in Politico “the public isn’t buying that gentlemen…my administration is the only thing [standing] between you guys and the pitchforks.” (his retort to bankers’ “we still have to pay (ourselves and) people extraordinary amounts of money because we are competing for talent internationally”).

Changing the Rules – the BIG difference

 Steve Coburn does not have a snowball’s chance* in changing horse racing’s institutions much less the Triple Crown because he does not have the “connections.”  In contrast, certain of the largest, most sophisticated financial institutions before and after the global financial crisis spent hundreds of millions perhaps billions of shareholders’ dollars on lawyers, lobbyists, campaigns to legally influence certain elected individuals, legislation and appointees at agencies (requiring no direct Congressional oversight) to build up connections in the event they experience/d “adverse” events.   And when they did, they knew exactly who to go to and what cards to play.

To this day certain institutions (banks, regulators, policy makers, agencies and ratings agencies alike) struggle under a lingering cloud of suspicion and distrust.  The lingering is due in large part because institutions are not people, ONLY when and if certain people are held appropriately accountable then the cloud will begin to lift.  Markets and ALL (writ large) participants deserve nothing less.

*Few, if any would have EVER predicted in 2008, the Fed would own over $4 Trillion worth of government and agency mortgage – backed securities in 2014.

When we look back at the GFC (Global Financial Crisis) & Rules changes

What “rules” changes took place, accompanied by hundreds of billions of dollars worth of indirect and direct support in a matter of days, weeks or months?  No less than every one of these, the discount interest rate was slashed to zero from 5.25%, programs such as TAF, PDCF, TARP, CPFF, AMLF, TSLF, MMIFF were implemented (including 2007 exemptions to FRB Rule 23 A) PLUS we still have a $4 Trillion Federal Reserve balance sheet.

Bear in mind, there was no act of God here, no black swan, it was all 100% man made, accounting fictions, by those at only the largest, most sophisticated financial institutions.  It was all controllable by those in position (and with plenty of authority) to do so – from the start.

A Wall St Journal reader named “The OZ” commented August 28 2007

Maybe they have enough to give away… how long can the $Muck Money printing co. run? Not many, really have a grip yet on the …REAL (underlying)ISSUE – ISSUSES here?

The Fed said it themselves, we have 200 Billion (paper money) (no gold standard) ready to inject into the banking industry! Did any one stop and think that maybe that’s all they might have available, for now? Question: Where would they have to go to get the rest of the injection that’s going to be needed in order to stop the massive economy credit debt/subprime problem from bleeding itself to death? Maybe…Just Maybe, the Fed is close to being overextended also? And everyone is screaming cut… cut…cut the FUND RATE… ask why?

Question; can Uncle Ben pick more peppers in the short term than he can pick in the long term (soft landing)? Fed minutes, are a joke into and unto their selves! Could it be… say it isn’t so JOE!

Our government is almost broke and living like the hedge funds, markets, banks, etc – etc and the public has been living like for the last six years? Pension plans, 410K’s and SS are going broke… That’s a factoid… JOE!

This economy scenario that we are living in today… will take all the kings men… (White House) (Company/s) (Senate) & (House)… all working together in order to put this Humpty Dumpty… back together again! What the heck do I know, Ahhhh…just call CNBC they have a full time staff that can help out and steer you in the right direction! You think!
The OZ

The Pepper Picker aka Student of the Great Depression

I wonder if or when the Student of The Great Depression (TGD) was aware of the few sentences in Moodys’ 1907 (not a typo) Annual Report – for that matter I seriously wonder whether Moodys’ itself was aware:

A while back I happened upon the Moodys’ Annual 1907 (no typo) issue on the occasion of research into the Panic of 1857 in connection with the sinking of the SS Central America, reportedly carrying one third of all the gold mined in California, a reported 480,000 ounces due for New York banks, off the coast of South Carolina during a hurricane in September 1857.  The Annual, available on Google books (btw big kudos to Google books) contained an illustrative but brief paragraph:

These amounts due interior banks give these interior institutions command over the cash reserves of the New York banks. Practically every dollar of cash reserve $230,000,000 is subject to call by the interior banks.  Three committees of the Clearing House that investigated the subject reported that the financial panics of 1857, 1873 and 1884 were precipitated by the calling of reserve money by interior banks. [Not one, not two but fully three committees.]

As the bard says “past is prologue.”

If only our banking supervisors, regulators and policy makers were like most horsing racing fans we would still have the true sport of free – market “Capitalism.”

 For more or (310) 943-6509

Copyright Chris McConnell & Associates 2014 All rights reserved



Acting as trustee

Acting as a trustee?  Better go to acting classes…

A recent consultation involving asset protection trust strategies redounded to a very basic observation applicable to nearly all trustees.  As I said on the conference call to the new lay (non – professional) trustee “when you walk out of your legal adviser’s office, the half-life of you remembering his / her specific instructions begins.”  His adviser totally agreed.

What does that mean?  It means that new trustees start to forget exactly what they need to do, when and why the very moment they (or their attention) starts to drift.  They forget, in spite having only the best of intentions, then at a key moment that requires focus and utmost attention, a distracting event (illness, family emergency, accident, major vacation, etc.) pops up.

Acting as a trustee – means act!

Serving as trustee, is an enormous and seemingly endless responsibility.  Make absolutely certain you consult appropriate legal, independent fiduciary,  financial, investment and tax advisers on a regular basis and or as needed.  Require them to accept fiduciary responsibility in writing and  assiduously monitor any hired agents.   It will evidence your diligence, prudence and certain implicit fiduciary standards of care in the event questions from beneficiaries arise many years down the road.

For those interested in what it means to act as a trustee can follow the Los Angeles Clippers, NBA, NBA commissioner, Sterling ownership events like the recent Mrs Sterling interview with ABC’s Barbara Walters, Mr Sterling’s interview with CNN’s Anderson Cooper, following his recent Radar On-Line interview.

For more information or (310) 943 – 6509

Copyright Chris McConnell & Associates 2014 All rights reserved


SEC CSE 10th Anniversary

SEC CSE Agenda #3 April 28 2004The SEC commissioners conducted a brief 55 minute hearing on April 28, 2004 that set the stage for the global financial crisis (GFC) which began to unfold in early 2007 and reached full boil in September 2008.

As far as I’m aware, only five companies applied for SEC permission to become CSE’s (Consolidated Supervised Entities).  Those five were Bear Stearns, Goldman Sachs, Lehman Brothers, Merrill Lynch and Morgan Stanley.  The CSE program was terminated by the SEC on September 26, 2008 but only after all five CSE’s ceased to exist whether by merger (Bear Stearns was merged into JP Morgan in March 2008, Merrill Lynch merged into BankAmerica in September 2008), bankruptcy (Lehman Bros.) or switching charters to bank holding companies (supervised by the Federal Reserve regulatory scheme) in the case of Goldman and Morgan Stanley.  The charter switch enabled (among other benefits) them to borrow billions upon pledged collateral from the Fed’s discount window.

SEC CSE Agenda #3 detailThe CSE program’s hallmark and attraction was only the “largest most sophisticated investment banks” could become so (they had to maintain $5 Billion in net capital) and apply for permission to use “ANC or alternative net capital.” In other words the CSE’s (and the SIBHC’s at some the largest commercial banks in New York) could use their own computer models to determine their capital requirements.  The computer models were subject to pre-approval and ongoing review; which according the SEC Inspector General report at least in the case of Bear Stearns happened less than expected.

This event ten years ago today, was a seminal event which led to and caused the global financial crisis.  In total at the end of 2007, the CSE’s and SIBHC’s were over leveraged to the tune of $16 Trillion worth of assets, exposures and commitments according to an FCIC document which I refer to as page 13.  In comparison, US GDP was in the $14 Trillion range or so at the time.  Leverage is another way of saying assets owned or controlled but not paid for. Leverage is also (to the degree here) disintermediation; the exact opposite of why banks exist in the first place and people expect them to intermediate.

These arrangements and the ways in which $16 Trillion built up from 2004, in the darkness of the Shadow Banking system in the US explains much of what we saw before 2008 and explains the need for all of the extraordinary support (i.e. bailouts), favorable accounting and the Federal Reserve has a $4 Trillion balance sheet composed of Agency MBS (mortgage – backed securities) and Government bonds today.

For more information or (310) 943-6509

Copyright Chris McConnell & Associates 2014 All rights reserved



Clippers owner, fiduciary and the Brotherhood (of man)

The owner of the LA Clippers is apparently a wealthy man, and a fiduciary.   He seems secure enough (from an asset perspective) to say the things TMZ reports (at 7.32 PM PDT, TMZ which broke the story btw has been pushed to page 2 of a google search) but, if reports are accurate, pointedly, beyond-belief-insecure about black-skinned people.

It’s the top trending story and has generated huge pushback and rightful indignation from the likes of Magic and Snoop Dog, so much so that new NBA commissioner, Adam Silver called a Saturday evening press conference.  At the end of the day it comes down to the NBA’s new 2014 vintage due process (which Silver himself stated), so stay tuned sports fans. In the meantime, fans of all sports around the world can and should make their feelings known in thoughts, words and actions.

First, I wonder who, how, why, when and where the alleged conversation was taped to begin with.  And how TMZ came into it.

A few thoughts for the hater man – talk about uninformed thoughts and even worse, verbal diarrhea.

My grandmother used to say (regarding family and social settings) “if you don’t have something nice to say, don’t say it” – sound solid advice.

The man appears unaware, clueless and pathetic

NO one can completely and accurately trace their heritage ALL the way back, for he himself may in fact have more than a trace of blackness in him.

An example of historic irony

Hitler’s madness and aggression (according to his doctors notes) stemmed from being infected with syphilis purportedly from having sex with a Jewish prostitute in 1908, maybe that or similar infects DS?.  Excerpt from a report in the Daily Mail:

Hitler, who reportedly had sex with a Jewish prostitute in Vienna in 1908, put syphilis high on his political agenda, devoting 13 pages to the disease in his book Mein Kampf.  The job of “combating syphilis – the Jewish disease – should be the task of the entire German nation,” he wrote.  “The health of the nation will be regained only by eliminating the Jews.”

Or perhaps the real Count of Monte Christo who was black could have informed DS?

Has he not heard of or perhaps looked into Henry Louis Gates’ wonderful television series about historical DNA tracing studies?

Has he not read or been informed that the North African slave trade involved upwards of a million Europeans (from as far north as Ireland and Iceland) enslaved in the fortified port areas of North Africa like Tunis, Morocco, Algiers and Tripoli.  He could benefit from a little relatively “recent” history in the Pirates of Barbary, Corsairs, Conquests and Captivity in the 17th Century by Adrian Tinniswood.  A story of real people of “all” colors.  Pre-dating the 17th century, has he read or heard of the Blacks who enslaved millions of white slaves?  I bring it up as evidence that races, whether by force or by choice have probably always intermingled.

Or perhaps the man believes history starts with today and it’s all about him?  Look at who coaches his team, Doc Rivers.  Look at the stars who changed the Clippers fortune big time, Chris Paul and Blake Griffin and most of the rest of the Clippers players and I’m sure many team support personnel, corporate sponsors and most importantly the Clippers fans. As much improvement as the team has shown, the man reversed and set back that progress decades, with a few tongue slashes of ultra – disgusting statements.

Has he even tried to trace his own roots?  Think.  Has he had a DNA test to even prove he is the biological son of his parents?  Has he, the one with impressive wealth, conducted a forensic investigation of his family history?  Has he watched and looked at his family’s past as intensely and closely as he guards his assets and builds his business empire?

Or has he chosen to ignore or to remain ignorant?  Of course, he can and should accept 100% responsibility, apologize with 100% unqualified, un-hedged humility and enter sensitivity, civility and respect rehab pronto.  With that apology he could pivot, change tack, alter the course of his life.  Say a prayer for the man so he can perhaps feel the immense struggle and pain that “blacks” have endured for many centuries especially here in the United States of America, no matter whether by force or words.

The silver lining may be the Clippers team can lead by example and win a championship with their performance ON the court and more folks like the man may find reading a little other history can be a very positive, fulfilling life altering almost religious experience.  Let’s hope so.  At the end of the day we are all our brothers’ and sister’s keepers, no matter the color.  Putin was asked if Obama would save him  from drowning.  Putin said yes.  Obama was asked,  he responded that his swimming was not what it used to be.

USA Today reports the tape may have been taken by a woman who is the target of an embezzlement lawsuit.  And later USA Today has a recent update including statements from NBA owner Michael Jordan and former Clipper, Mychal Thompson regarding a potential fans’ boycott of game five scheduled for Tuesday in Los Angeles’ Staples Center.  Here is a link to the latest update from public radio NPR KPCC 89.3 FM.  NY Daily News weighed in as well.

For convenient reference Clippers Facebook, Twitter, Instagram, Google+Pinterest. Stumbleupon, Reddit, Tumblr, InsideSoCal, Linked In, YouTube, ESPN and the Clippers NBA website.

Later as the story develops, I’ll discuss some of the too numerous to mention potential fiduciary entanglements his alleged, racist, anti – black comments may bring.  Maybe the tape is a complete fake?

Sterling Silver, free and prudent advice

NBA Findings about Mr Sterling

New NBA Commissioner Adam Silver, after a three day investigation, has levied the largest fine in NBA history $2.5 Million, banned for life and recommended the Board of Governors take action to force Mr Sterling to sell the Los Angeles Clippers franchise.  Mr Sterling did not deny his racist comments or express any remorse or regret over his comments “directly” to Mr Silver.

Free advice may be worth what it costs.  With that said, Mr Sterling may own and hold the Clippers in a family trust.  Mr Sterling may be the trustee, and if so is covered by the California Uniform Prudent Investor Act (unless the trust itself has different provisions), probate code sections 16045 to 16054.  The California state legislature passed and fully adopted the Uniform Prudent Investor Act effective January 1, 1996. The act was promulgated in 1994 by the NCCUSL based in Chicago and derives from the Restatement Third of Trusts adopted in 1992.

Sterling Silver – a trustee is a fiduciary

Assuming Mr Sterling is a trustee makes an individual a fiduciary.  A trustee as fiduciary is held to the highest standard of conduct, always in favor of the beneficiaries of the trust.  By the way, no one is required to be a trustee, all serve voluntarily, often but not always receiving compensation and can resign at any time, usually having arranged for an appropriate successor in advance, sudden illnesses, accidents or death being common exceptions.

Mr Silver, (while the NBA constitution is or may be a private agreement), may or may not be a named trustee for the NBA however his public facing role and responsibilities to protect and promote the value of the NBA connote the major hallmarks of a special fiduciary duty, especially if the legal form is a partnership.

Free advice for Mr Donald Sterling, trustee and fiduciary

Hire qualified attorneys, financial and tax advisers forthwith and act swiftly to head off the forced sale the NBA may impose.  Dragging any of this out in court or arbitration can reduce the teams’ value.  The nature of disputes, especially of the first vintage (i.e. something like this action has not happened before) is very risky for all parties.  When the likely best (not perfect) course is to take action, move ahead and let time work in the interests of all.

Strategy for Mr Sterling

Remove the Los Angeles Clippers franchise from his family trust, assuming it’s there to begin with.  Establish a Charitable Remainder Trust (CRT) there are several different varieties like CRATs and CRUTs.  Transfer the franchise to the CRT.  This effectively can remove any and all family members from exercising any influence or control of the team, see next paragraph.

The CRT interim trustees, with the NBA, appoint a set of three qualified, experienced and independent trustees (similar to a receiver) subject to appointment, review, approval and or removal by the NBA Board of Governors (or their delegates) at any time.  Require this set of trustees to provide and perform sealed annual accountings (to maintain the privacy of the franchise’ dealings)  approved by a court of competent jurisdiction.

Mr Sterling and his family trust (and current and future beneficiaries) can receive substantial income from the donated asset (recent but informal values run as high as $1B) and tax deductions.  The best part, the Clippers asset value will be preserved and protected from diminution of value and appropriate qualified charities will be ultimate beneficiaries of the increasingly valuable franchise.  Doing so should minimize any litigation directed at Mr Sterling by beneficiaries or others related to his family trust for breach of fiduciary duty or breach of trust.

In the future, the CRT trustees can operate and manage the franchise and arrange for an orderly sale or disposition hopefully to increase its value to the CRT.

The ABA posted “Clippers’ owner legal options“.

The NBA Board of Governors

The board will likely vote to force the sale of the franchise.  Although it would be the comforting salve social media and the rightful indignation felt by many demand, it could perhaps set a slippery slope for this and any future such actions, likely diminish value and increase the risk profile of any and all pro sports franchise anywhere in the world.  A forced sale can disrupt value, and can and should be avoided as popular and perhaps deserved as it may seem.  The transfer of the franchise to an independently managed CRT is a viable and perhaps the most prudent course of action.

Sports is the thing that can and does bring us all closer together and that should be the ultimate goal.

The above is based on information as of April 29, 2014 1 PM PDT.

For more information or (310) 943 – 6509

Copyright Chris McConnell & Associates 2014 All rights reserved

Go Pic Bull Bear

Private Equity Forensic Audit

Monmouth Park JockeyLook up in the sky, is it a bird or a plane, no it’s PE, no not the price earnings ratio, not phys ed, or public engineer nor proper elimination and hardly public enemy, it’s PE as in private equity.  In the unending quest for diversification, enhanced yield, more income and risk reduction many investors including the largest public pension funds like CalPERs and thousands of individual accredited investors have turned to Private Equity.

Why might it be helpful to obtain an independent assessment of Private Equity?  We need look no further than SEC Chair Mary Jo White testimony.


… Some of the common deficiencies from the examinations of these (1,800) advisers that the staff has identified included: misallocating fees and expenses; charging improper fees to portfolio companies or the funds they manage; disclosing fee monitoring inadequately; and using bogus service providers to charge false fees in order to kick back part of the fee to the adviser.

What is private equity?  Private Equity, an alternative investment asset class, includes but is not limited to LBO’s (Leveraged buyouts), distressed investing, mezzanine financing, venture capital and angel investing.  Private equity investments are illiquid, however, no matter the type, category or name, after the formality of the private placement memorandum (PPM) “the disclosure document” when you get right down to it, the private equity (PE) asset class is a complex conversation about leverage.  PE, when it’s successful, can be a tonic or like a visit to a spa injecting new blood in the form of people, ideas, capital structure, domicile and capital to rejuvenate (or rationalize which is the economic operating term) mature companies.

The largest private equity buyouts include Hertz rental cars, First Data (credit card processor), Hilton Hotels, Kinder Morgan an energy company and RJR Nabisco done in 1989, subject of the book and movie Barbarians at the Gate plus smaller deals like Dunkin’ Donuts, J. Crew, Toys “R” Us and Burger King.  Thousands of deals take place every year involving companies with much smaller valuations.

What does PE do?  PE seeks to make money by converting an established business’ cash flows into something worth more.  The PE manager often acting as the Fund General Partner, asks how can I take the target company’s mixture of existing cash flows, assets and liabilities and change it for the better and make outsize returns, after taxes and costs?  Answer it’s all about leverage.  Dozens of factors can and should be analyzed to determine the optimal extent, nature and timing of measures for each private equity target or portfolio company.  And each measure’s impact model effects into the overall private equity fund.

PE Forensics, is a team of experienced professionals with over 100 years of highly specialized high touch expertise dating from the 1960’s to today.  Private Equity PE Forensics looks at the fund, deal structure, due diligence, target companies, valuation, complex fiduciary duty analysis to forensic accounting, industry ratio analysis, SEC filings and more to assist investors, limited partners, fund sponsors and legal counsel to fulfill their variegated and daunting fiduciary duties.

The raison d’etre of PE Private Equity Forensic Due Diligence Litigation Support is to prevent future Bernie Madoff ponzi schemes from ruining the lives and devastating the portfolios of innocent investors and beneficiaries.

When you need to know PE in depth contact us for a PEDDLS (Private Equity Due Diligence Litigation Support) including evaluation, due diligence or litigation support.

Contact or (310) 943 – 6509

Copyright Chris McConnell & Associates 2014 All rights reserved

Layers of Trust Beneficiary and Investor protection?


  1. United States Constitution
  2. Congress
  3. Flag of the United States
  4. Federal Reserve Board
  5. SEC (Securities Exchange Commission)
  6. FASB (Financial Accounting Standards Board)
  7. PCAOB (Public Company Accounting Oversight Board)
  8. SIPC (Securities Investor Protection Corp.)
  9. NASSAA (North American State Securities Administrators Association)
  10. NYSE (New York Stock Exchange)
  11. FINRA (Financial Industry Regulatory Association, formerly the NASD)
  12. MSRB (Municipal Securities Rulemaking Board)
  13. FINRA Members (otherwise known as broker dealers, stock brokerage firms, etc.)
  14. Member’s Legal, Compliance Departments; National, Regional and Branch Sales Offices
  15. Member’s Registered Representatives (known by various titles like Stockbroker, Series 7, etc.)

Believe it or not, the above is not even a complete list of investor protections.  It’s 2014, still trustees of trust accounts lack protection afforded by a fiduciary standard from members of FINRA.  It’s over four years ago since SEC Chair, Ms. Schapiro told the FCIC (Financial Crisis Inquiry Commission):

The Commission has been closely examining the broker-dealer and investment adviser regulatory regimes and assessing how they can best be harmonized and improved for the benefit of investors. Many investors do not recognize the differences in standards of conduct or the regulatory requirements applicable to broker-dealers and investment advisers. When investors receive similar services from similar financial service providers, it is critical that the service providers be subject to a uniform fiduciary standard of conduct that is at least as strong as exists under the Investment Advisers Act, and equivalent regulatory requirements, regardless of the label attached to the service providers.

Given Ms. Schapiro’s statement under oath that “many investors do not recognize the differences in standards of conduct” implies who does recognize the difference.  Members of FINRA including the largest national brokerage firms do recognize the differences and have resisted a fiduciary standard until this day.

Numerous laws have been enacted since the 1970’s. It’s forty years since the passage of ERISA (1974), twenty years since the promulgation of the Uniform Prudent Investor Act (1992) and over eighteen years since California adopted the Prudent Investor Act (1996).  And it’s over twenty years since Standard & Poors introduced the SPDR (spider), traded under the ticker SPY (NYSE: SPY) whose expense ratio is 9 basis points or 0.009% and it’s almost forty years since Vanguard introduced the S&P 500 index fund, it’s twenty – two years since Vanguard introduced the Vanguard Total Stock Market Index Fund whose expense ratio is 17 basis points or 0.0017%.  Perhaps that’s why certain members are resisting the fiduciary standard?

In contrast, when Wall St and certain FINRA members, including the five former CSE’s (Consolidated Supervised Entities) needed money to stay afloat in 2008 they got what they needed in a matter of weeks.  Coincident to the SEC’s termination of the CSE program, only two were allowed to switch to bank holding companies (allowing them to borrow from the Fed); Bear Stearns, Lehman Brothers and Merrill Lynch were not permitted to do so.  Bloomberg estimated support at $7.7 Trillion, since then, the Federal Reserve has provided additional support (and indirectly to certain of the same members) with a $4 Trillion investment in Treasury bonds and mortgage backed securities through the unprecedented Large Scale Asset Purchase Program called Quantitative Easing.  When they were asked what they did with their allocation from the $350 Billion TARP money (Troubled Asset Relief Program), large bank CEOs said “we don’t know or can’t say.”  These appeared in CNN Money and Rolling Stone.

Perhaps this is too obvious to point out, but beneficiaries of trust and fiduciary accounts are entitled to, deserve and actually need protection.  They need it because they are depending on members placing their interests first.

Due Diligence Steps for Trustees and Beneficiaries

  1. Trustees should only use investment advice from advisers who agree to a fiduciary standard
  2. Beneficiaries should confirm that trustees have trust assets and accounts only at firms that agree to a fiduciary standard
  3. In performing due diligence, evaluation or ways to protect trust assets, trustees and beneficiaries may consult the Fiduciary Expert
  4. Trustees and trust beneficiaries may also wish to check out McFideo

After all, investors, trustees and trust beneficiaries likely can’t wait another several years before the SEC sees fit to follow certain laws.

For more information or (310) 943-6509

Copyright Chris McConnell & Associates 2014 All rights reserved





Legalized Pot, Marijuana Stocks and Trust Fiduciary Account Implications

Ever since medical marijuana and recently recreational pot became legal in two states, marijuana stocks are popping up to serve new customers, create sales and profits.  It’s estimated over 94 million people in the US have tried pot at least once including Presidents Obama and Clinton.   This post goes from farm to fiduciary.

The Seattle Times estimated the average user would smoke 123 joints per year (perhaps “123 joints” or just “123” may become as ubiquitous as 420).  An excerpt from that article points out the importance of each state accurately estimating pot consumption:

The state’s consumption estimate is important (RAND study) because it drives licensing for pot production, including the number of growers and the size of their operations. Underestimating statewide consumption could hand customers to illicit dealers, according to state officials. Overestimating could lead to surplus weed being diverted to other states. (and minors)

Total pot retail revenues will be based on the extent of users who opt to purchase legal pot as opposed to non-regulated pot.  Also of concern, the Seattle Times article points out, topicals, other extracts and hash oil called wax, budder and shatter; are seen as becoming more popular with younger users.

Investing in pot stocks such as HEMP, MJNA, marijuana stocks are a popular new investing fad:

FINRA the (Financial Industry Regulatory Authority) recently issued an advisory regarding pot and marijuana stock scams.  FINRA and the SEC also cautioned about pump and dump stock scams.

Pot is a new, experimental and some believe illegal industry.  News flow seems to change from day to day.  Pot stocks include all of the same risks and more than other stocks, in addition to being new and not limited to user and regulatory (federal, state, county and local community) risks and uncertainties.   Trustee, agents and fiduciaries are advised to seek more than one professional investment opinion before and while investing in pot stocks; significant investments in pot stocks require very intense due diligence and ongoing monitoring.  Separately, business owners may or already have started pot retail stores, farms or pot – related businesses like the tangential PotFarm game app.  Soon we may see pot franchise chains, kiosks and online e-commerce stores.  If or when these businesses may be part of a family trust, retirement or certain pension plans, fiduciaries must be very careful and deliberate with respect to operations, advertising, legal, medical, privacy, regulatory and  HIPAA compliance.  The potential risk of litigation for social, health and community and law enforcement effects like dram shop liability, marijuana prescriptions, sales and marijuana malpractice, class actions (like the tobacco class actions), second hand smoke and the like require very careful consideration.

Tips for trustees, agents, fiduciaries and beneficiaries

Information, communication and education for trustees, agents and beneficiaries and advisers is essential. Potential pot investing, pot use by parties to the trust including trustees and all potential beneficiaries puts trust principal (money) and drugs into the spotlight in unique ways, like never before.  Occasionally issues of mental or cognitive capacity may arise sooner and unexpectedly from pot use by any and all parties to trust accounts.

Common trust terms provide for beneficiaries’ health, maintenance, support and education up to a certain age, milestone like high school or college graduation or sometimes for life.  Trustees and advisers will be challenged when it comes to a beneficiary, especially a younger one who uses pot as it may be simultaneously both contradictory and complimentary of those provisions.  Beneficiaries need to be careful when spending trust distributions on any drugs – legal or not.  Beneficiaries are advised to seek legal counsel (and medical counsel after retaining legal counsel) regarding information exchange and inquiries to trust officers, administrators or trustee if buying drugs like pot or pot extracts are envisioned.

A few words of caution and optimism

Pot’s legality, convenience and easier access is a slippery slope or a boon.  Medical necessity benefits or recreational enjoyment does not change the potential for any user, whether it’s a trustee, beneficiary, agent or another fiduciary to become addicted or try more or stronger drugs; potentially significantly exposing the parties, trust and trust assets in unexpected and negative ways.  On an optimistic note, hopefully all will be cool and trust assets will not go up in smoke!

For more information or (310) 943-6509

Copyright Chris McConnell & Associates 2014 All rights reserved

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