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Years in the hedge fund/CTA space left me completely convinced that the regulators were right in throwing up barriers to investing in a wider range of investmen

Years in the hedge fund/CTA space left me completely convinced that the regulators were right in throwing up barriers to investing in a wider range of investments. Outright fraud probably isn't the main risk - it's deceptive salespersonship and naivete on the part of investors about what they're entering. I don't know how we'd get a judiciary with the expertise to judge the cases. It's not like the US makes it hard to start a laundromat with your friend, or something like that. It's about whether vulnerable people will make predictably wrong decisions about "investment opportunities".

cjlars 6y ago
A good heuristic is that if the damages are less than $20k or so, it doesn't make financial sense to sue. So a lot of small investments through a sketchy or one sided contract can easily allow bad actors to continue to operate for years.
riazrizvi 6y ago
Deceptive sales practices are illegal already, the SEC has a mandate to prosecute them. While the Greenspan era was notorious for undermining that, the Financial Crisis restored the political will to support their mandate. The Trump admin did what it could to reverse that and hopefully the Biden admin will push against crime again. As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire? More warnings if necessary sure, but not more nannying.
- arrosenberg 6y ago
  > While the Greenspan era was notorious for undermining that, the Financial Crisis restored the political will to support their mandate. Did it? I haven't see anyone prosecuted for the 2008 crash, unless I missed it.
  - riazrizvi 6y ago
    > Citigroup - SEC charged Citigroup's principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. The court approved a settlement of $285 million which will be returned to harmed investors. (10/19/11) > Commonwealth Advisors - SEC charged Walter A. Morales and his Baton Rouge-based firm with defrauding investors by hiding millions of dollars in losses suffered during the financial crisis from investments tied to residential mortgage-backed securities. (11/9/12) > Deutsche Bank AG - SEC charged the firm with filing misstated financial reports during the financial crisis. Deutsche Bank agreed to pay a $55 million penalty. (5/26/15) > Goldman Sachs - SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. (4/16/10) Goldman Settled Charges - Firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10) Fabrice Tourre Found Liable - A jury found former Goldman Sachs Vice President Fabrice Tourre liable for fraud relating to his role in a synthetic collateralized debt obligation tied to subprime residential mortgages. (8/1/13) > Harding Advisory LLC - SEC charged a Morristown, N.J.-based firm and its CEO for misleading investors in a CDO about the asset selection process. (10/18/13) ICP Asset Management - SEC charged ICP and its president with fraudulently managing investment products tied to the mortgage markets as they came under pressure. (6/21/10) > ICP and President Settled Charges - ICP and its president Thomas Priore agreed to pay penalties and settle the SEC's charges (9/6/12) And many many more at https://www.sec.gov/spotlight/enf-actions-fc.shtml https://www.sec.gov/spotlight/enf-actions-fc.shtml
    - arrosenberg 6y ago
      Ah, ok. I see I miscommunicated. I was referring to criminal prosecutions than end up with people in charge of the corrupt organizations going to jail. Not just a handful of fall guys like Tourre and Kerviel, and not just a "you broke the global economy tax".
- mundo 6y ago
  If it was possible to make millions of dollars by fooling naive people into misusing matches, matches would be regulated.
- caturopath 6y ago
  > As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire? People generally understand the risks of matches. They can evaluate what happens when they use them, they can tell when it's went wrong, and they are prepared to contain the harm. If you make a match that's a bit more impressive, it becomes a firework and we regulate the hell out of it. A match can be combined with gasoline to become a lot more dangerous, and we regulate the hell out of gasoline. Want to keep around 20,000 gallons of gasoline? No problem, you just need the appropriate permits, insurance, and equipment.
asah 6y ago
1000 times yes - there's 100+ year history of fraudsters, and IT DOES NOT WORK to prosecute after the fact: the incentive to defraud is simply too high, and the frauds can last for too long. Consider Bernie Madoff: he lived well for decades before his fraud unwound, and his fraud was not original - they call it a "Ponzi Scheme" after Charles Ponzi, a famous (but himself not original!) fraudster. https://en.wikipedia.org/wiki/Charles_Ponzi https://en.wikipedia.org/wiki/Charles_Ponzi
- _alex_ 6y ago
  and he didn't get _caught_. He admitted it.

cjlars 6y ago

A good heuristic is that if the damages are less than $20k or so, it doesn't make financial sense to sue. So a lot of small investments through a sketchy or one sided contract can easily allow bad actors to continue to operate for years.

riazrizvi 6y ago

Deceptive sales practices are illegal already, the SEC has a mandate to prosecute them. While the Greenspan era was notorious for undermining that, the Financial Crisis restored the political will to support their mandate. The Trump admin did what it could to reverse that and hopefully the Biden admin will push against crime again. As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire? More warnings if necessary sure, but not more nannying.

arrosenberg 6y ago
> While the Greenspan era was notorious for undermining that, the Financial Crisis restored the political will to support their mandate. Did it? I haven't see anyone prosecuted for the 2008 crash, unless I missed it.
- riazrizvi 6y ago
  > Citigroup - SEC charged Citigroup's principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion CDO tied to the housing market in which Citigroup bet against investors as the housing market showed signs of distress. The court approved a settlement of $285 million which will be returned to harmed investors. (10/19/11) > Commonwealth Advisors - SEC charged Walter A. Morales and his Baton Rouge-based firm with defrauding investors by hiding millions of dollars in losses suffered during the financial crisis from investments tied to residential mortgage-backed securities. (11/9/12) > Deutsche Bank AG - SEC charged the firm with filing misstated financial reports during the financial crisis. Deutsche Bank agreed to pay a $55 million penalty. (5/26/15) > Goldman Sachs - SEC charged the firm with defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. (4/16/10) Goldman Settled Charges - Firm agreed to pay record penalty in $550 million settlement and reform its business practices. (7/15/10) Fabrice Tourre Found Liable - A jury found former Goldman Sachs Vice President Fabrice Tourre liable for fraud relating to his role in a synthetic collateralized debt obligation tied to subprime residential mortgages. (8/1/13) > Harding Advisory LLC - SEC charged a Morristown, N.J.-based firm and its CEO for misleading investors in a CDO about the asset selection process. (10/18/13) ICP Asset Management - SEC charged ICP and its president with fraudulently managing investment products tied to the mortgage markets as they came under pressure. (6/21/10) > ICP and President Settled Charges - ICP and its president Thomas Priore agreed to pay penalties and settle the SEC's charges (9/6/12) And many many more at https://www.sec.gov/spotlight/enf-actions-fc.shtml https://www.sec.gov/spotlight/enf-actions-fc.shtml
  - arrosenberg 6y ago
    Ah, ok. I see I miscommunicated. I was referring to criminal prosecutions than end up with people in charge of the corrupt organizations going to jail. Not just a handful of fall guys like Tourre and Kerviel, and not just a "you broke the global economy tax".
mundo 6y ago
If it was possible to make millions of dollars by fooling naive people into misusing matches, matches would be regulated.
caturopath 6y ago
> As for naivete of investors, should we also regulate away matches, because consumers might cause an unwanted fire? People generally understand the risks of matches. They can evaluate what happens when they use them, they can tell when it's went wrong, and they are prepared to contain the harm. If you make a match that's a bit more impressive, it becomes a firework and we regulate the hell out of it. A match can be combined with gasoline to become a lot more dangerous, and we regulate the hell out of gasoline. Want to keep around 20,000 gallons of gasoline? No problem, you just need the appropriate permits, insurance, and equipment.

asah 6y ago

1000 times yes - there's 100+ year history of fraudsters, and IT DOES NOT WORK to prosecute after the fact: the incentive to defraud is simply too high, and the frauds can last for too long. Consider Bernie Madoff: he lived well for decades before his fraud unwound, and his fraud was not original - they call it a "Ponzi Scheme" after Charles Ponzi, a famous (but himself not original!) fraudster. https://en.wikipedia.org/wiki/Charles_Ponzi https://en.wikipedia.org/wiki/Charles_Ponzi

_alex_ 6y ago
and he didn't get _caught_. He admitted it.