ENDEMIC DISHONESTY

Do the actions of a few bad actors tarnish a whole industry?

 

This was the question asked in a letter sent today by my old futures trading brokers in response to yet another futures trading firm going under due to fraud - just after the MF Global scandal where 1.2 billion was stolen from traders and still nobody has been prosecuted.  (see below)  And not to mention the Libor fixing scandal - affecting 1000 trillion dollars worth of derivatives - which is easilythe largest scale fraud in the history of the world.

 

Can this level of dishonesty be anomalous?

 

Yesterday, by chance, I went to my commercial bank (Chase) where I was offered the chance to participate in a 'virtually risk free' opportunity to invest in a fund guaranteed to yield over 3 percent!  Wow - 3 whole percent!  I marveled at this opportunity.  What was the catch?

 

Well, principal of course was not guaranteed, but of course I'll get the principal back, I was assured.  It barely fluctuates.

 

What about interest rate event risk?  What if rates rise?

 

That's the marvelous thing, I was told, if rates rise the fund does even better because of the clever way it's been assembled.

 

Wow!  What's in it? I asked.

 

Well, we can't tell you that.   That's the "Special Sauce."  Besides, it's always changing.  But, keep in mind this is Chase Bank and the fund is assembled by our brightest managers, the ones you see on CNBC all the time.

 

Gee, that sounds great!  How about giving me a peek at a model portfolio?

 

No, we don't provide that.  

 

Now, let's just say i was enticed by this incredible 3 percent return and  let's say I did invest a lot of my money, and let's just say the "special sauce" went sour, and I lost a lot of my money.  

 

Is Chase Bank liable at all for misleading me?  No!  Not at all.  

 

Nothing in this conversation is illegal.  Yet it is as fundamentally dishonest as being assured that the house I was purchasing was "Virtually structurally sound" but you can't see it, or look at blue prints.  Just be assured that we're the biggest and best home builder around.  

 

Who would buy that house?  Nobody.  But lots of people put their money in Chase's fund. 

 

How does a bank get away with this?  How is it that a bank floor officer feels comfortable talking this way?   I don't think he realized he sounded more corrupt than the most cynical used car salesman.  This is what he's taught to say.  He probably even believes he's presenting me with a terrific opportunity.  This is what we've come to.

 

How long can it last?   And how wide spread is it?  

 

Which markets do you suppose are free of corruption, manipulation and fraud?

 

Exclusive: U.S. probing failed broker PFGBest's use of small auditor

Published: Wednesday, 11 Jul 2012 | 10:30 PM ET

WASHINGTON/CHICAGO (Reuters) - U.S. futures industry investigators are looking into why Iowa-based collapsed brokerage PFGBest used a tiny accounting firm that appears to be operating from inside a suburban Chicago home to audit its books, according to a person familiar with the matter.