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Tuesday, August 20 2019 05:30PM ET - Markets Closed.

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WhisperNumber's Wake Up, Edition III
The Firms and People that Steal Your Money
Commentary provided John Scherr, President, WhisperNumber.com
"Those who do not learn from the mistakes of history are doomed to repeat them".

A few years back I considered myself an 'Ignorant Individual Investor'. I labeled myself within this group of investors simply because I knew very little about investing or how the Wall Street game was played. I found out during the 'bubble years' that the playing field wasn't level, and that making money turned out to be much more difficult for me than for those 'in the know'. I followed the advice of so-called 'experts', made trades based on 'research' reports, and recommendations. But what I didn't know was that many of these recommendations and reports coming from analysts and professionals were 'bunk'. In many (proven) cases information was intentionally offered to mislead, whether through fraudulent research reports, unfair research, investment banks receiving or not disclosing payments for research, or the engaging in spinning of IPO's. The companies involved in these practices include the following: Citigroup's (NYSE: C) Salomon Smith Barney unit, Merrill Lynch (NYSE: MER), Credit Suisse Group's (NYSE: CSR) Credit Suisse First Boston, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MWD), Bear Stearns (NYSE: BSC), J.P. Morgan Chase (NYSE: JPM), Lehman Brothers (NYSE: LEH), UBS Warburg, and U.S. Bancorp's (NYSE: USB) Piper Jaffray.

Today, it is apparent that Wall Street has taken the road of forgiving and most certainly forgetting, but what about my fellow ignorant investors and me? It should be unbelievable to all of us that each and every one of these financial firms had so little regard for individual investors (their very clients) that they willfully risked clients' life savings for their own corporate gain. So, why are we (the now less ignorant individual investor's) not taking a stand and boycotting these firms? Do we hope that the SEC or Mr. Spitzer will make things right for us? They won't.

These firms hope we stay ignorant and will soon forget the wrong doings they have brought upon us. As for myself, I have neither forgiven nor forgotten. In fact, I'm still quite bitter as the evolution (or better said lack thereof) within Wall Street's research and investment-banking relationships has little changed. It is this bitterness that has helped me become more aware of the field of play. It was not and still is not fair to the individual investor, and my excuse of being ignorant can only be used once. Going forward I know what I'm up against, and I wanted to remind those of you that may be slipping back into your ignorant ways that without real change, you'll have no one to blame but yourself next time. And believe me, there will be (another) next time.

Let's review some of the stories that made quick headlines:
'A top Morgan Stanley stock analyst won't face civil charges in the conflict of interest investigation of analysts and brokerage firms and will be allowed to continue working on Wall Street, a source close to the investigation said Wednesday. Mary Meeker, a leading tech stock analyst, will be criticized in the landmark settlement with Wall Street's top brokerages, but she won't face sanctions like those placed on other star analysts for allegedly misleading investors with biased stock ratings during the street's 1990s "bubble," the source said Wednesday, speaking on condition of anonymity.'

'Merrill Lynch's Henry Blodget is facing regulatory action and Salomon Smith Barney's Jack Grubman has been barred from the securities industry. Frank Quattrone, the former powerful banker in charge of the global technology group in Credit Suisse First Boston, is also being investigated by regulators.'

So what has happened since these very prominent figures have appeared in scandalous news headlines?

Mary Meeker is still at Morgan Stanley, and was recently praised in a Forbes article as "Morgan Stanley's luminary Internet analyst." She was 'allegedly' touring China at the time. And kudos to Forbes for letting bygones be bygones with Mary's 'alleged' wrong doings.

Merrill Lynch hall of famer Henry Blodgett, who privately disparaged stocks he had touted in public, is, (now get this), working for online magazine Slate.com as a reporter to cover the insider trading charges facing Martha Stewart. Slate.com can now join the ranks of CNBC, Reuters etc. for maintaining journalistic integrity. As for the regulatory action against Blodgett (a settlement with no admission of wrong doing was reached with AG Spitzer), well, that would be overlooked on anyone's resume, right?

And in a related Blodgett/Merrill story; in July of this year, Henry Paulson Jr., chief executive of the Goldman Sachs Group, chose former director of research at Merrill Lynch, Andrew Melnick, to run Goldman's research department. What's the relation here? Mr. Melnick was the supervisory analyst in charge of Henry Blodgett at Merrill Lynch. (By the way, Paulson is a Board member of the NYSE). Don't you just get all warm and fuzzy inside knowing that Goldman has taken the high road here and brought in a fresh research perspective?

Jack Grubman has moved on…uh, well…moved over to a new office at least, within Citigroup. (No, really, I couldn't make this stuff up if I tried.) Despite being banned for life from the securities industry for misleading his clients with pumped-up reports on telecommunications companies, Mr. Grubman has an office at a Citigroup bank building (he works at least 15 hours a week at the banking group to help prepare its defense against lawsuits). His $33m severance package maintains that he would have to commit time to the firm's legal team to ensure a payment of $50,000 every three months. The payment is part of a $1.2m cash deal spread over 18 months. The bank is also paying for Mr. Grubman's own legal bills. The severance package included forgiving a $15m loan he was given in 1998; another $12m came from cashed-in share options and restricted stock. Let's hope the 15 hours a week isn't too much for Jack and he spreads it out over five or six days.

For Frank Quattrone (one of the highest-paid figures on Wall Street in the late '90s, earning almost 100 million dollars a year at the helm of CSFB's technology unit), "a US federal judge set a date of March 22 for the re-trial on obstruction of justice charges of Frank Quattrone. Judge Richard Owen had been forced to order a mistrial the first time around in October when the jury remained deadlocked after more than five days of deliberations." I wonder who's paying for his defense? I hope he gets a new office at CSFB when all is said and done. Or maybe Goldman will make him an offer? And on a side note: hey Frank, get that shi* eating grin off your face.

Now, this was just a simple follow up to some of the well-known names that made the news. More recently we've seen scandals (or follow ups, or additional allegations) involving Merrill, Enron, the NYSE, WorldCom, HealthSouth, Citigroup, and Bank of America. An interesting story that gained some press in October involved JP Morgan. 'The U.S. Securities and Exchange Commission said that Wall Street brokerage J.P. Morgan Chase & Co. Inc. agreed to pay $25 million to settle a probe into practices in initial public offering (IPO) share allocation. The SEC said in a statement that it accused J.P. Morgan of inducing certain favored customers who got allocations of hot IPO shares from the investment bank "to place purchase orders for additional shares in the aftermarket."' And now for the kicker - 'The SEC said the settlement, in which J.P. Morgan neither admitted nor denied wrongdoing, involved IPO's from 1999 and 2000.' And the comments from JP Morgan - 'J.P. Morgan spokesman Joe Evangelisti said: "We are pleased that we and the SEC have settled these charges, and put this matter behind us."' So what now, Joe, that this all behind you? On to the next town to rape, pillage, and plunder the individual investor?

Nothing has changed, and nothing will change. If you think otherwise, you're wrong or delusional. How can I be so sure? Easy. Name me one firm that has been brought to court, found guilty and duly punished with executives (remember those guys in charge?) sent off to jail? Better yet, name me more than one individual from the above mentioned firms that has been taken to court, found guilty, assets taken, restitution enforced, and sent to jail? The majority of executives and all the firms have been able to get off neither admitting nor denying wrongdoing, and have ended up paying a pittance of a fine. (By the way, many of the settlements were covered by corporate insurance policies.)

These are just a few examples in a very short period where investors continue to get taken, misled, or kept in the dark. (It's not difficult to find this information, but most of it sure wasn't from mainstream media sources.) I haven't even mentioned the Mutual Funds scandal - we'll look to provide a full commentary report devoted to it soon.

As stated in the opening sentence: "Those who do not learn from the mistakes of history are doomed to repeat them".

You can't rely on insiders and politicians to help protect you from atrocities that are now a common occurrence on Wall Street. These events are orchestrated and the people being hurt the most are individual investors. The Wall Street 'administration' hasn't changed, the SEC has yet to protect or reimburse you, and the media tows the party line.

You can, however, make sure your voice is heard. Don't hesitate to send an email, a letter, or even make a phone call. The education you can gain with these simple acts will pay off in the long run. And sitting on your hands and doing nothing? Well, we'd have to say you get what you deserve.
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Since our start in 1998, we have collected earnings expectations (whisper numbers) from traders and investors that register with our site. Whether you call it 'wisdom of crowds', 'social media analytics', or 'crowd sourcing', this methodology has proven itself over the past twenty years as a more useful and valued earnings indicator. And traders know estimates don't move markets, expectations move markets.

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