|
News
90.3 WCPN®'s award-winning News and Information Department
produces more than five hundred hours of original programming each year.
Though much of it is ephemeral, as one would naturally expect of news,
often the stories have "shelf life" that allows them to resonate beyond
the particular day on which they were broadcast. In the coming weeks,
we expect many of them to show up here, for your enjoyment and interest.
We also welcome your help in suggesting stories at webdirector@wcpn.org.
Weekly Financial Report
With Scott Roulston of Fairport Asset Management
Friday, January 25, 2002
Scott Roulston, CEO of Fairport Asset Management, discusses
the "week of shock" for local investors who were clients of local investment
manager accused of stealing over $100 million is assets, how investors
can protect themselves from such losses, and the prospects for recovery
of the losses by local investors.
April Baer–It has been a week of shocks for
local investors. Two multi-million dollar scams have come to light. One
defrauded thousands of people who bought a life insurance pool. The other
involved the manager of the respected Lehman Brothers firm... and it didn't
happen overnight... It's left investors wondering if they can trust the
people they've hired to manage assets. That hits very close to home for
some people - like Scott Roulston of Fairport Asset Management who is
with us in the studio this morning. Scott, how are you?
Scott Roulston–I'm doing very well, April.
AB–Give us an idea to start out with, in the
case of Frank Gruttadauria, how much work it would've taken to pull this
off - over $100 million and that may not even be the full story.
SR–We're not really sure how much this is
for. As a matter of fact, there are two elements: whatever was misappropriated
and then whatever was exaggerated over the returns that they should have
received. One of the interesting aspects of that is that the firm is going
to have to rely on the customers to tell them how much they thought was
in their accounts. It was a heck of a lot of work. From what I understand,
he was providing first class statements that looked like the real deal.
He was reconstructing portfolios to show that clients had 20-25% returns.
He was providing 1099 tax forms - he was doing the whole nine yards.
AB–That's a whole lot of paperwork.
SR–It's a lot of work. Not only that but somebody
must have been taking every call that came in to thwart somebody checking
in and finding out how much they really had in their account. That's a
real mystery and one of the questions that needs to be answered.
AB–Well, we don't know what happened here.
It may have been lost or it may have been stolen. The FBI isn't saying
much at this point. But do you think that one broker would have been able
to pull this off alone?
SR–That's an excellent question. The whole
question of supervision is one that you are already seeing some finger
pointing between Cowen, his former employer, and Lehman Bros., as far
as who is at fault. There is an issue here - that is, failure to supervise.
In our industry, firms like these have exception reports. I can't imagine
why it wasn't flagged that so many account statements were going to a
post office box in the same neighborhood of the branch manager.
AB–How many people would have been involved
in a firm like this? Frank Gruttadauria's letter published in the Plain
Dealer today blames a lack of attention at the senior level, but wasn't
he at the top of the Cleveland bureau?
SR–He was, from what I understand. Again,
somebody - this is a New York-based firm; they have compliance operations
(very good compliance operations) outside of Cleveland. I can't understand
why some of these exceptions wouldn't have been flagged. They normally
are, with most firms. I was talking with people at McDonald & Company
yesterday, who by the way were not touched with this, but they have never
seen anything like this. I was talking to Tim Hanahan at Baker & Company
who has been very active in our industry self-enforcement through the
NASD. He said he's never seen anything like this and something like this
would normally come up in an exception report.
AB–I guess the thing that is so frightening
about all of this is, if the top of the heap can get fleeced, it can certainly
happen to anybody. How can people detect scams involving their money?
SR–That's a great question and I think it's
one that a lot of people are asking right now. Here are a couple of things.
First of all, some money managers use third-party custodians. I know we
do that, so for example you might use a bank or Charles Schwab as a third-party
provider of statements. So you can match your statement with whoever is
managing your money with whoever is actually holding your money. Asking
different people - again I'm going back to this firm, Baker & Company.
Every time you call that firm, you get a different person, so you can
check your balance with different people and kind of walk around. Internet
access - people who were clients of Frank's at Lehman tried to get Internet
access and he wouldn't let them get internet access. So that would be
another way to verify your true balances.
AB–Well, I guess the big question here is
are the people who lost money going to get it back?
SR–Well, that is really the big question.
$100,000 is the SIPC coverage, but that isn't even going to touch most
of this. The real question is these 20-25% returns that he was saying
that people were getting. Is that really what they are going to get back?
I think not, frankly.
AB–The question is, do you get back the money
you actually lost or do you get back the money that you think you had
- that your broker was telling you had in the bank?
SR–And that won't be covered by any kind of
insurance, either.
AB–Scott, thank you so much for joining us.
Scott Roulston of Fairport Asset Management joins us each Friday to talk
about the business news of the week.
AB–Scott Roulston of Fairport Asset Management
joins us each Friday to talk about the week's business news.
|
