Monday, July 09, 2012

The Federal War Against Jobs, Or, What I Did Before My Summer Vacation

 What I just finished doing before my summer vacation, in between trying to make money in this wacky world of investments, was only a minor skirmish in the Federal Government’s War Against Jobs, but is instructive nonetheless to anybody who actually wants to know what it’s like to run a business in this increasingly bureaucratized “free market” system we identify broadly as “Capitalism” in the United States of America in the Year 2012.  [The writer might have written “Year of Our Lord 2012,” but that would have triggered some sort of lawsuit under whatever Federal Statute forbids mentioning such things in public nowadays—ed.]
  By way of perspective, for 19 years I have been buying and selling publicly traded securities on nothing more than a verbal agreement over a telephone, or through a typed agreement via instant message, with men and women seated as far as 3,000 miles away from wherever I happen to be.
 Of the dozen or so traders I have dealt with on a semi-regular basis over the last two decades, I see half in person maybe once every year or two (or three), while of the remaining half, I have met five in person exactly once, and one of them I have never met at all face-to-face.
 Thus far, there has never (knock wood) [or “touch wood,” as the Brits would say—ed.] been a problem with that way of doing business.
 After all, as in most businesses, you get to know what people are like by how they act—not by what they tell you over drinks in some mid-Manhattan restaurant.  So why waste time schmoozing in meetings with traders or anyone else, for that matter?  [This does not include companies: the writer is happy to meet with companies all day long—ed.]   Investing is and has always been a true relationship business.
 Nevertheless, in their ingenious and escalating War Against Jobs, the Federal Government has come up with ever more ways of dreaming up meaningless stuff that people have to fill out thanks to some new law or regulation that was designed to eliminate some problem that appeared when somebody circumvented a different law or regulation.
 In this case, it is an “Institutional Suitability Certificate” demanded by FINRA [I could explain what this is but why don't you just Google it?—ed.]
with the blessing of the SEC, and it reads as follows: 
[and no, he is not making this up—ed.]

(Pursuant to FINRA Rule 2111) [1]
In connection with any recommended [2]transaction or investment strategy by a registered broker-dealer, the undersigned acknowledges on behalf of the Institution named below that:

I.               It is an Institutional Account as defined in FINRA Rule 4512(c) [3]

II.              It (1) is capable of evaluating investment risks independently, both in general and with regard to all transactions and investment strategies involving a security or securities; and (2) will exercise independent judgment in evaluating the recommendations of any broker-dealer or its associated persons, unless it has otherwise notified the broker-dealer in writing;
III.            It will notify [vendor] and each broker-dealer servicing the Institutional Account if anything in this Certificate ceases to be true;
IV.            This Certificate and the information contained herein may be shared with broker-dealers or third parties, including via a secure database or electronic platform established by [vendor]; and
V.              He or she is authorized to sign on behalf of the Institutional Account named below.
By signing this Certificate, the undersigned affirms that the above statements are accurate but does not waive any rights afforded under U.S. federal or state securities laws, including without limitation, any rights under Section 10(b) of the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
1. Available at
2. As defined in FINRA Rules. 
3. The term “Institutional Account” means the account of: (1) a bank, savings and loan association, insurance company or registered investment company; (2) an investment adviser registered either with the SEC under Section 203 of the Investment Advisers Act or with a state securities commission (or any agency or office performing like functions); or (3) any other person (whether a natural person, corporation, partnership, trust or otherwise) with total assets of at least $50 million as of the date of this Certificate (whether such assets are invested for such person’s own account or under management for the account of others).

 In other words, as far as I can tell, I am acknowledging that I’m in a risky business, and assuring whoever needs assurance that I won’t hold anyone else responsible for my actions.
 And even though nothing in this piece of paper changes my behavior, since it is no different than how I have been doing things for 19 years, I just spent half my afternoon faxing these pieces of paper to various institutions because today was the deadline. [most firms have minions who do this sort of thing, so maybe if this guy hired some minions he wouldn’t have to fill these things out—ed.]
 All so a bunch of well-meaning back-office  types can check off the box that says they have complied with yet another meaningless rule [“meaningless” in the sense that bad guys will sign anything, right?—ed.]
 Which is totally non-productive, has no bearing on anything in the real world, and was a pure waste of time that would have been much better spent on research, which I will now get back to once this goes up on Jeff Matthews Is Not Making This Up.
 And that is what I did before my summer vacation [“vacation” in the sense of “work all day near a beach”—ed.]

 Jeff Matthews
Author “Secrets in Plain Sight: Business and Investing Secrets of Warren Buffett”
(eBooks on Investing, 2012)    Available now at

© 2012 NotMakingThisUp, LLC
The content contained in this blog represents only the opinions of Mr. Matthews.   Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations.  This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever.  Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored.  And if you think Mr. Matthews is kidding about that, he is not.  The content herein is intended solely for the entertainment of the reader, and the author.


Anonymous said...

jeff, long time reader and fan of your blog. i'm also in the financial services industry myself. on the face of it, i agree that this form might look like another brick in the wall of mindless bureaucracy.

but let's get real. the financial services industry has been absolutely rife with corruption and self-dealing in recent years. the industry has been begging for more regulation, even if it's continued misbehavior has proven the regulation too little and too late.

until thought leaders can fully own its misdeeds and stop blaming the victim, many in the industry will continue to prey on its customers and the regulators will have to continue to try to crack down. though their efforts will surely be hampered by many in the industry.

Jeff Matthews said...

"Blaming the victim"? The writer hasn't explained how this silly rule stops anything. This is straight off the NY Times editorial page.

By the way, this anti-mindless-regulation post is not about stopping regulatory oversight: it's about getting rid of mindless, ineffective stuff like having people fill out forms that say "I certify that I'm an adult."

I've always said if you really want to stop fraud, put Jim Chanos in charge of the SEC, shut down the regional SEC offices (they allow Senators with influence in each region to protect their favorite companies), get rid of the union that governs the SEC lawyers' hours and have at it. You'd get the fraudsters out in a hurry.


Anonymous said...

FINRA is not a federal agency. It was set up by securities firms themselves to "self-regulate" (whatever that means). So, the brokers think that making you sign another piece of paper will protect their a**es. Some lawyer who came up with it is getting his fees. Nothing new. But please blame the Feds only when the blame is really due. Not here.

extickerpimp said...

Congrats on 19 years Jeff. I think I was there in year 1 and you still owe me a Meister Brau

Jeff Matthews said...

Barry you WERE there in Year 1 and I do indeed owe you a Meister they still make those?