It’s hard to have many illusions about the conflicts of interest and shady dealings of the brokerage industry if you’ve been paying attention for a long time like I have.
But you tend to think the worst offenders have New York or Long Island addresses like Jordan Belfort’s Stratton-Oakmont, of Wolf of Wall Street fame.
But wait! The spirit of the boiler rooms lives — in Iowa of all places (h/t Josh Brown).
Screw, Then Sue!
Now comes the news from Dealbook that Berthel Fisher & Company, based in sleepy Marion, Iowa, is the latest trailblazer in screwing over its clients. Not only have they sold lousy private placements to their unknowing customers, but they have had the nerve to countersue them to intimidate them!
Not even the New York firms have had the chutzpah to try this tactic before. If Berthel succeeds in this gambit, it will basically mean that brokerage firms can get away scot-free with any abuse of their customers, suitability standard or not.
Here’s an excerpt from the Dealbook article Brokers Countersue to Thwart Suits by Unhappy Investors:
The brokers they have sued are suing them back, accusing them of reneging on indemnification agreements.
The practice, which can intimidate investors already reeling from investment losses, is not widespread. About half of the at least two dozen scattered examples come from one brokerage firm — Berthel Fisher & Company, based in Marion, Iowa.
Berthel Fisher seized on the language in those documents to bolster two counterclaims against 32 investors from Midwestern states who had lost all of the money they had invested in a private placement in a cellphone company. Berthel won both cases last year. The investors said they had been pitched the product by Berthel brokers who had an obligation to sell them a suitable investment. In their complaints filed with Finra, they contend that Berthel employees told them the investment was a ‘sure thing,’ ‘no lose’ and carried little risk.
In February, Finra fined Berthel $775,000 for supervisory failures related to its sales of alternative investments. Among Finra’s findings was that Berthel had not enforced suitability standards for sales of some of its alternative products. One of the firm’s brokers, described but not identified in the settlement with Berthel, is in prison for stealing money from his clients. Mr. Peiffer’s firm is representing an investor who did business with that broker.
Mr. Vaerewyck, the former Reef customer, said countersuits were a bullying tactic. ‘They figured, ‘We will just ram this down these little people’s throats and scare the hell out of them,’’ he said. ‘I think their ploy was that we would back off.’
Berthel’s Website Talks of Integrity, LOL
The video intro to Berthel’s website talks the talk of integrity and they use the well-loved former coach of the Iowa Hawkeye football team, Hayden Fry, to convince people they will be good stewards of their money.
A reminder: really good con artists don’t seem like con artists. If you can fake integrity, you can go a long way if you are morally ambiguous. At least until people catch on.
As I have said before, avoid all private placements! As Josh Brown has said, “Almost every private placement you have ever been pitched or will ever be pitched is a scam.”
Next, if you deal with an advisor, insist that they have a fiduciary standard of care, not the mere “suitability standard” of brokerage firm reps. Or do it yourself through an organization with low fees and integrity like Vanguard.
And, for God’s sake, if you have money with Berthel, get out while the getting is good. An organization with no integrity is not a good steward of your money.