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FELP


Guest roark33
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Is that Picasso?

 

Not totally familiar with the investment and those involved other than occasionally looking at the thread. But the Brokercheck I dont think always tells the full story. Yea Im saying that as someone in the biz. But I can also tell you how many times an investment goes sour and the client gets amnesia or starts the Monday morning QB routine. Almost always happens when there are big blow ups. The "industry", being "self regulating" requires the broker/advisor to report ANY complaints, even, as they detail in the training programs, something as simple as "I dont like the way you talk"...At quick glance, all of the complaints seem to stem from the same investment. Dude was probably running a concentrated book. And LOL @ Sears getting a shoutout too.

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I actually find this kind of sad. Picasso I know was viewed as a very high quality poster who was involved in a lot of GFC value stuff that ended up working out quite nicely. FELP, even from his initial writeup, was a 5 bagger or something. That said, I also know that sometimes when a manager writes up a name, his basis may actually be much higher; he may even have some ulterior motives...

 

I have no knowledge of the guy personally, and will refrain from making judgments about character. But I do think its a worthwhile cautionary tale for anyone in the business. CYA. I think you can make inferences regarding his style....aggressive. But also, dudes been in the biz since mid 2000s and never had a complaint. Now gets a bunch of complaints. Centered around one name blowing up. During a major O&G bear market.....If I had to guess I know where I'd lean in terms of wagering on what really happened.

 

 

The business has evolved in quite crazy ways. I actually know of a firm who went out of business because their client list got stolen. Ended up being bought by a scumbag law firm. The law firm then called all the clients and solicited them for complaints/arbitrations/lawsuits for any investment they lost money in.

 

Shit like this is a big part of the reason why I didnt want to spend too much of my life dealing with this crap.

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I agree that Picasso was an extremely well regarded poster and appears to be great stock picker. However, when you are responsible to invest other people’s money, risk management is even more important than being a good stock picker. The complaints are dating back to 2014 based on the Finra site. The following excerpt (from a lawfirm representing claimants ) is quite interesting:

 

The claimants allege that Ayre made unauthorized investments which placed over 94% of the claimants’ investments in one of their accounts in a single high-risk energy company. Ayre is also alleged to have engaged in unauthorized trades in corporate bond positions which suffered tremendous losses.

 

 

If true, this is more than just a trade going bad, it would be unresponsible gambling with other people’s money.

 

https://frankowskifirm.com/stockbroker-dennis-phillip-ayre-named-as-respondent-in-1-4-million-arbitration-claim/

https://frankowskifirm.com/dennis-ayre-continues-to-rack-up-customer-complaints/

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I agree that Picasso was an extremely well regarded poster and appears to be great stock picker. However, when you are responsible to invest other people’s money, risk management is even more important than being a good stock picker. The complaints are dating back to 2014 based on the Finra site. The following excerpt (from a lawfirm representing claimants ) is quite interesting:

 

The claimants allege that Ayre made unauthorized investments which placed over 94% of the claimants’ investments in one of their accounts in a single high-risk energy company. Ayre is also alleged to have engaged in unauthorized trades in corporate bond positions which suffered tremendous losses.

 

 

If true, this is more than just a trade going bad, it would be unresponsible gambling with other people’s money.

 

https://frankowskifirm.com/stockbroker-dennis-phillip-ayre-named-as-respondent-in-1-4-million-arbitration-claim/

https://frankowskifirm.com/dennis-ayre-continues-to-rack-up-customer-complaints/

 

On the law firms, the second a FINRA complaint is filed, many of the ambulance chaser firms have automated programs that shoot out boilerplate press releases advising "anyone who worked with XXXXX XXXXXXX to contact us regarding your options"....

 

On the first part, depending upon how the account was setup, its very possible to do the above without doing anything wrong. If he is not operating as a 65 but simply a 7/63, he has no fiduciary duty. All he has to do is make sure what he's recommending is suitable. And suitability is simply determined by what boxes are checked on account opening forms. The good old trick back in the day was to only deal with HNW investors who check "speculation" for objective and "max aggressive" for risk tolerance. You could literally put their entire investment in one name and then double it over on margin. Effectively 200% long in one stock. And its entirely kosher. For a stock broker, the UT claim is also probably one of the most common. Guy all of a sudden say "I never agreed to buy that". Always well after the trade has gone down....But you still have to ask, why if you didnt want it, did you wait until 2019/20 to file a complaint for a transaction that took place 5+ years ago? During which you've gotten 50+ monthly statements?

 

The biggest complaint I see here that will stick is using the non-firm email to essentially guarantee clients against losses. Both are big No-Nos. Guys probably getting a lifetime ban.

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Sorry to hear that. I guess I will rephrase the gist of my post and summarize by stating that often times folks dont really know the nuances and it is very much important to. A regular brokerage account is very different from a managed account and even with those there are very different levels of responsibility. In this case, I dont know what happened. I can only infer from the stuff Ive seen guys go through and experienced myself over the years. There s a big difference between somebody screwing a client and aggressively churning an account to generate fees(Ive seen that), and a guy simply getting one wrong in a big way. I mean Bill Ackmans blown up SPVs. So have many others. I'm fairly certain their intentions were in the right place and their investors knew the risks.

 

The other side of risk management is that most people dont give you their full assets. So you can say "diversify"...but I know and have seen guys lose clients out of pure boredom because theyre trying to do the right thing. I remember personally seeing a client transfer out his account to a different firm one time. Guy had maybe a half mil in a brokerage account. Had a diversified mix of Google, Home Depot, etc. Basically S&P components, some cash too....Well his net worth was $5M+ and he was clearing $700k a year and a month later the broker who managed him reach out to follow up. His new guy sold everything to buy $750k of Exco Resources and $300K of Sandridge...So now his diversified $500k portfolio was margined 2:1 in 2 highly levered names; the same type of stuff Dennis was buying and I'm fairly certain it turned out the same way cuz this was probably sometime in 2014. The broker who did the right thing lost the client. The guy who had the sexy sales pitch and cool story stocks probably made $20K+ in fees and at the time the client was excited about it.....I have a few guys that I work with who are extremely high net worth that basically have punch card relationships with me. A couple times a year when I find something really interesting I give them a ring and if they like it they'll fund an account with a big chunk of money with the entirety of it being for one investment and thats how they want it. To an outsider, they'd see the entire account in one position and think WTF. Every client is different.

 

Its definitely not a simple biz. IMO folks are really just better off indexing if they dont want to follow things closely and if they do want to be active, engage places like this where you can get the help and feedback for free or at minimal cost.

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The following excerpt (from a lawfirm representing claimants ) is quite interesting:

 

The claimants allege that Ayre made unauthorized investments which placed over 94% of the claimants’ investments in one of their accounts in a single high-risk energy company.

 

 

On the law firms, the second a FINRA complaint is filed, many of the ambulance chaser firms have automated programs that shoot out boilerplate press releases advising "anyone who worked with XXXXX XXXXXXX to contact us regarding your options"....

 

On the first part, depending upon how the account was setup, its very possible to do the above without doing anything wrong. If he is not operating as a 65 but simply a 7/63, he has no fiduciary duty. All he has to do is make sure what he's recommending is suitable. And suitability is simply determined by what boxes are checked on account opening forms. The good old trick back in the day was to only deal with HNW investors who check "speculation" for objective and "max aggressive" for risk tolerance. You could literally put their entire investment in one name and then double it over on margin. Effectively 200% long in one stock. And its entirely kosher. For a stock broker, the UT claim is also probably one of the most common. Guy all of a sudden say "I never agreed to buy that". Always well after the trade has gone down....But you still have to ask, why if you didnt want it, did you wait until 2019/20 to file a complaint for a transaction that took place 5+ years ago? During which you've gotten 50+ monthly statements?

 

The biggest complaint I see here that will stick is using the non-firm email to essentially guarantee clients against losses. Both are big No-Nos. Guys probably getting a lifetime ban.

 

I admit I am biased because I respect Picasso as an analyst and like him as a person. I have no specific knowledge of these situation or complaints, but I would recommend patience before reaching a conclusion about this unfortunate situation. Here are a few reasons why.

 

First I would ask the following. What happens if you put 50% of assets in a position that goes up 20X in a short period of time? What percent of the portfolio does it become? What impact does this have on taxes? What impact does liquidity have? What if you end up owning more than 10% of the company? What if lots of people are watching your moves? These are problems that many commenters have never had to deal with for clients.

 

Also, as Greg mentions, I believe at least some clients likely represented that he was managing only a tiny portion of a very large total portfolio of an extremely wealthy. risk seeking, highly sophisticated client. 94% allocation for a very sophisticated client who is telling you to try swing for the fences and to hit a home run is not necessarily inappropriate. It is also possible that a client might represent themselves one way during the good times and a different way during the bad times.

 

Greg has also hit on a couple of truths about the business. I would add to it that no one ever sues for taking too much risk if the outcome is a 20 bagger even if it becomes 94% of the portfolio. If that position gets paired down to a more reasonable position size and later goes to zero, expect lawyers whether there are merits to the complaints or not.

 

A couple of other points. Settling doesn't necessarily signal anything other than a corporations willingness to make something go away, and record keeping regarding client communications, directives and suitability may be more important than many other issues mentioned in this thread.

 

I believe Picasso was at one time managing multiple portfolios for multiple entities, so an email from the wrong account may not mean what it appears to mean. Also possible that what a complaint calls a guarantee is not what a reasonable person would call a guarantee.

 

I would also say that the narrative presented here is dominated by statements and press releases written by lawyers for one side.

 

FELP would be an inappropriate position in many portfolios. It would also be inappropriate for many clients to have a highly concentrated portfolio. That doesn't mean either are inappropriate for all portfolios, and we don't have enough information. It's too easy to jump to conclusions in this information age with only a small amount of information.

 

sampr01--Much respect for your attitude and sorry to hear of your experience and financial loss.

 

Note: Edited to remove name.

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Incredible, from Picasso's posts I would not have imagined such a conclusion. Goes to show you how little an online persona can show.

 

That said, I agree with Greg. Either you know what you're doing and you manage your own money (or at the very least know enough to weed out ratfucks - pardon the term), or you index.

 

Seriously, just buy the index.

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I was invested with him and lost more than 50%, but not going to blame him. It’s my mistake.

 

It's a very respectable attitude from your side.

 

Agreed. I hope sampr01 will get a fair outcome and kudos for posting here about his situation. There is a tendency to only see people swimming victory laps so to speak (especially this year) but the reality is often different.

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Haha yeah, I lost a decent chunk on FELP. I have this knack for getting into multibaggers that then go to 0, and letting it donut without selling.

 

I imagine his life hasn't been too pleasant the past couple years. The flip side of concentration... One minute you're a rockstar, the next you're a fraudulent piece of doodoo.

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Sorry to hear all this. There's a very ugly side to the business that most people never see or hear about. There's few other places or jobs where you can make the same type of money with such "freedom", but it definitely comes with costs. Hopefully things turn out OK for you. More to life than the next 10% portfolio fluctuation.

 

 

Also, I dont know Roark at all. But I would just generally say that 95% of the folks Ive met in this business arent good people and be careful because most of the people who act like "friends" will quickly forget your name the second they no longer benefit financially from you.

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I would like to note that there is a remarkable shift in the tone of this thread after the first five or so posts.

 

If you're looking for a more fulsome discussion of either bad luck or mistakes made in the investment industry from someone either in the industry or formerly in the industry good luck finding it anywhere other than in Picasso's recent posts. And if you do know of an example to recommend, I'd probably be interested in reading it.

 

I still have never discussed any of this with Picasso, and if I had discussed anything with him I probably would keep my mouth shut on this forum, but since I haven't I'd like to make a few high level comment regarding this thread.

 

Even if I didn't know Picasso the combination of two personal experiences would have led me to believe that taking the complaints at face value was very unlikely to give a complete picture. Here are two examples I'd like to explain in case they are helpful to any readers.

 

First, I have had a lot of exposure to the CFA ethics, through exams, organizations, and other experiences. Having that framework seems to have resulted in me having a more nuanced and complicated model of what issues might be at play, I noticed Gregmal had a similarly nuance to his comments, which he seemed to attribute to time in the industy. The CFA Code and Standards is a higher standard than the law in general, but if you're lost in this thread and can't figure out how to think about these issues, you can easily get a copy of the code and standards. Some people find it an effective treatment for insomnia while still being easier than trying to understand the actual regulatory framework for different regions.

 

https://cfainstitute.org/-/media/documents/code/code-ethics-standards/standards-practice-handbook-11th-ed-eff-July-2014-corr-sept-2014.ashx

 

As a second framework, I briefly worked for a financial expert witness years ago and I have a brief anecdote I hope will be instructive. The first rule for the lawyers chasing cases is "show me the losses". If there are no losses, there can't be any damages, if there are no damages, their are no claims. So the way it works is that at the bottom rung of the the industry their are undoubtedly many law firms that look for losses, announce actions and start recruiting clients before they have figured out if there are any actual potential claims of wrong doing or fault. All you need to do to confirm this is to look at how many firms announce investigations as soon as a stock falls in price above a certain amount. I am convinced that if someone looked for it they would probably find a couple of firms that announced investigations or even cases when the stock actually fell due to a special dividend or something equally ridiculous. I only worked very briefly at the highest end of the market, but I assume the easiest way for the ambulance chaser types to prospect for business is to just pile in to the fray and try to find clients whenever they see claims and settlements announced somewhere. The previously cited sources and most other publicly available information on the web seems to fit that mold.

 

Also, I would note that an often cited data point in the alternative management industry is that the vast majority of funds that shut down shut down due to operational issues, not fraud or mismanagement. Plus you need to add in a lot of bad luck in combination with operational issues in many cases. So even if I knew nothing about this situation, a base rate analysis should have lead me to believe that bad luck and operational issues are much more likely than fraud or mismanagement.

 

The original direction of this thread had all the makings of the worst of social media swarming and misinformation, with Gregmal interjecting some early reason from someone with experience.  If you're trying to understand what some of the online ill's of society are these days and how disinformation can flourish, I think this thread and it's interaction with one sided incomplete narratives from lawyers seeking clients is a really interesting study. A little bit of "knowledge" can be a dangerous thing.

 

Finally, I find Roark33's original post and the fact that he used Picasso's real name a little bit odd. I see that last night after Picasso started posting Roark33 changed the title of the thread and changed his first post to just say "FELP". Interesting.

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Yup. The firms are definitely not your friends. Or even allies. If you are still with them and producing, they'll play ball sometimes. But if you leave, they can be your worst enemies. Have heard more stories than I can recall of retaliatory U5 filings, marking of peoples licenses, phantom "complaints" popping up after the fact, and fight to the death type stuff over who gets to retain the "clients"...which the advisor does all the work with but the firm believes are theirs.

 

Compliance anywhere sucks. Its all CYA crap from people who only have an elementary understanding about what they think the regulators want to see. Most have never been producers so they have no appreciation for the various aspects and difficulties of certain tasks. Ive gotten into full blown fights with some of these idiots over shit like "you cant buy XIACF because its a pink sheet penny stock! The regulators arent going to like this!". And its so aggravating explaining, "no you retard, its a $50B company that trades on another exchange and has US listed ADRs"....its also hard to do so politely when the response, regardless of content presented is "yea but it trades on the Pink sheets and its a $2 stock!". End of rant...

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Also, I dont know Roark at all. But I would just generally say that 95% of the folks Ive met in this business arent good people and be careful because most of the people who act like "friends" will quickly forget your name the second they no longer benefit financially from you.

 

That's true everywhere, just that the benefits random people derive are usually social instead of financial. Anybody who's gone through the grind knows people will treat you very differently if you enjoy success in almost any endeavor, whether there is money to gain or not. And if you suck or mess up, you'll be treated like ass. Unfortunate but it's human nature. I bet Picasso had his fair share of unpleasant encounters with people that were not financially tied to him, too. But then again success can get to someone's head and change them. In my POV everybody sucks, first person included, just have to roll with it.

 

At the end of the day Picasso's got skills to spare and he puts in the necessary effort, it's a savage hit now but things will turn out fine for him in due time.

 

 

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Seems like everyone who wants to start out investing on behalf of friends and family or even wants to start out with SMA as a business should read this thread as a cautionary tale.

To me at least, it seems like doing these binary type bets in SMA looks like a ticking time bomb and lawsuits waiting to happen. If you keep doing these things, it is probably just a matter of time until it blows up and creates a nightmare of lawsuits.

 

It is probably not just people being bad, but the human brain will remember failures and losses much more so than success. I could easily envision an investor making 4 equal sized bets with three of them being doubles and one being a wipeout and yet in the end this investor being disgruntled as the failure was “evident from the start” in retrospect of course. After the fact everyone knows better ‍♂️.

 

It’s just how humans are wired, I think.

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