San Diego Weekly Reader Vol 40, Issue 16 : Page 2

C I T Y L I G H T S C I T Y L I G H T S C I T Y L I G H T S UNDER THE RADAR On the road y e t again Democratic con-gresswoman Susan Davis , by far the most prolific junketeer of either party in San Diego’s congressional del-egation, managed to fit in an eight-day trip to Tokyo before Japan’s earthquake and nuclear disasters hit. The sponsor was the Japan Center for Interna-tional Exchange, which, according to its website, “conducts political exchange programs for leading American and Japanese policymakers, carries out policy research and dialogue projects on press-ing international issues, and works to promote a greater understanding of civil society and phi-lanthropy in Japan and the Asia Pacific region.” The site adds that, “One dramatic way that [the Japan Center for International Exchange] helped expand US-Japan dialogue was by arranging the 1975 Japan Socialist Party visit to the United States, its first visit in nearly two decades. This opened the way for growing engagement between the Socialists and US leaders.” Specific sources of its funding are not provided. The center covered a total of $3993 in busi-ness-class airfare and other transportation expenses for Davis and her husband Steve , along with the couple’s lodging costs of $1679 and meal expenses of $706. During the trip, from February 19 through 27, Davis and her husband stayed at the luxurious Hotel Okura next to the U.S. embassy in downtown Tokyo while she attended a round of receptions, briefings, and meetings with titles including “Japan in the Global Economy,” “Women in Politics in Japan,” and “Roundtable Dis-cussion with Keidanren (Japan Business Federation),” as well as a banquet hosted by Japan’s then– foreign minister Seiji Maehara . The final three days in the country were left open, with “accom-modations, meals, and incidental expenses cov-ered at personal expense.” Besides Davis, other invited congressmembers included Democrats Diana DeGette of Colorado; Hawaii’s Mazie Hirono ; New York’s Nita Lowey ; and Republican Tom Petri of Wisconsin. Demo-cratic senator Jim Webb of Virginia also attended and gave a speech… Jeffrey Davidow , a former Clinton State Department hand, is quietly leaving his position as president of La Jolla’s Institute of the Americas to take a job as senior counselor at Washington, D.C.’s Cohen Group, an international business-consulting outfit run by ex–U.S. sec-retary of defense William Cohen . No word on who will replace Davidow here. These Are Right for Client? By Don Bauder Susan and Steve Davis love free luxury travel. W FP Securities is a brokerage house Labor pains The San Diego Police Officers Association has its hands full warding off efforts by city councilman and prospective mayoral can-didate Carl DeMaio to make the City’s pension plan for cops into a 401(k) retirement system. But judging by its most recent IRS filing, dated June 14, 2010, and covering the 12 months ending in July 2009, the group’s officers haven’t been particularly well paid. Then-president Bill Nemec got $18,611; then-treasurer Rob Lewis collected $5034; and vice president Jeff Jordan made $11,587. The association, involved in a series of lawsuits with the City, paid $443,250 to the firm of Bobbitt, Pinckard & Fields of San Diego and $300,674 to the Irvine firm of Jackson, DeMarco, Tidus & Peckenpaugh. The membership anted up a total of $1,901,429 in dues, and the association reported making an additional $80,078 from advertising. Compare those numbers to the San Diego– based United Domestic Workers of America, an affiliate of t h e he a d qu a r t e re d on C o r n e r s t one C ou r t i n Sor rento Va l ley. It is one of a n Carl DeMaio leads a charge to convert San Diego Police Department from pensions to 401(k) retirement. 2 Sa n Diego Reader Apri l 21, 2011 American Federation of State, County and Munic-ipal Employees, which, according to its website, represents 65,000 workers in 11 California coun-ties, including San Diego. Members provide home care to aged and disabled individuals, paid for by taxpayers, and the union has been a key lobbyist against pro-posed cuts to the program. In 2010, accord-ing to a recently filed disclosure with the U.S. Depar tment of L ab or, the union collected $18,025,405 in dues and agency fees, had net assets of $10,931,118, and spent $1,072,803 on “political activities and lobbying.” Its highest-paid employee, executive direc-tor Douglas Moore , received $225,925 in sal-continued on page 50 in terlo c k i ng net w o r k o f firm of Aidikoff, Uhl, and f i nancial comp anies wit h Bakhtiari is handling three offices mainly in Southern arbitrations totaling $7 mil-California. The brokerage lion in claims. The broker-boasts on its website, “Our age house and related indi-motto is simple… viduals “failed to Al wa ys do w h a t co nd uc t p r o p er is r i g h t f o r t h e d ue dilig e nce client.” on m any s e c u r i -U h, s o r r y. A ties t h a t t u r n ed slew of irate clients o u t t o b e Po nzi don’t feel that way. s c hemes,” s a ys No fe wer t han 16 a t t o rn ey Da vi d arbitrations and 4 Harrison. “A firm John Schooler, wr i t t en dema n ds has an obligation president of WFP ha v e b e en r e gis-under regulator y Securities t e r e d aga i n s t t h e r u les t o conduc t f irm and its web of enter-d ue dilig ence .” WFP so l d p r is es. Mo st o f t h e co m-shoddy products that were p l a i n ts a r e aga i n s t WFP . not suit able for investors, m a n y of w h om The two primary spiders in we re re t i re d , h e the web appear to be Louis says. Schooler, who owns 50 per-Here are some cent of the brokerage’s par-of the complaints ent company and is presi-filed by investors dent of Western Financial w h o c l a im t h e y Planning, and his brother, have been burned John Evan S chooler, pres-by t he brokerage iden t o f WFP Se c u r i t i e s The Sor rento Valley headquar ter s of WFP a n d We st er n Fina n cial and its af f i liates: Securities, the brokerage house under Advisors. unsuitable recom-fi re for putting clients into high-risk, The major b e ef is t h at mendations, neg-speculative investments. clients were put in hig hly ligence, breach of sp ec ula t i v e in v e stmen t s co nt rac t, b r e a c h o f f i d u -th at th e Ne w Yo r k S t oc k t h at w e r e i n ap p r o p r i at e ciary duty, negligent super-Ex c h a n g e’s enf o r cemen t f o r un s o p h isticat e d p e o-visio n, f r a u d , neg lig en t group was simp l y a jo k e ; ple of modest means. Those misrepre s e nt at ion, viol a-it would have given a clean allegedly crapshoot invest-tion of the California Cor-b ill o f h e al th t o Ch a r les ments often paid fat com-porations Code, lack of due P o nzi . B u t t h e N a tio n al missions to brokers, many diligence, putting custom-As s o ciat ion of S e c u r ities of whom are named in the ers in Ponzi schemes, sell-D e a lers was at le ast mo d-arbitration cases. For exam-ing fraudulent investment erat e l y dilig ent in crac k-pl e, t h e B e ve rly Hills law products, deceit and omis-in g do wn o n ba ndi ts — small-time on es, any w ay. I t fa mo usl y miss ed o n e Copley retirees may get refunds Early retirees from ’06 may b ig-time ba ndi t: P o nzi be due Social Security and Medicare tax reimbursements... s c hemer B e r nie M ado f f Gores brothers bid for Warner Music Platinum Equity and was once vice-chairman of Union-Tribune owners are among three finalists bidding for Warner... t h e Nation al As s o ciat ion Ex-IRS agent nailed for laundering Tax preparer Steven of S e c u r ities D e a lers an d Martinez charged with 49 counts of tax fraud... quite active in association Read Don Bauder news updates like these every day at SDReader.com continued on page 50 sion of material facts, sell-ing of illiquid investments, failure to disclose brokers’ compensation, elder abuse, b r e a c h o f im p lied co v e -nant of good faith and fair de aling, viol at ion of Ne w York Sto ck E xchange and N a tio n al A s s o cia t io n o f S e c u r i ties D e aler s r u les, vio l a t io n o f t h e C a lif o r-nia C onsumer Legal Rem-edies Act, and entrance into unauthorized transactions. W h en in v e st o r s sign agr e ements wi t h b r o k er-ages, b ot h sides pl edge to take their disputes to man-dator y ar bit ration. Thes e are handled by t he Finan-cial I n d u str y Regulat o r y Aut hor ity, w hich was cre-at ed in 2007 in a mer g e r o f t h e Natio n al A s s o cia-tio n o f S e c u r i ties D e a l-er s a n d t h e enf o r cemen t arm of the New York Stock Ex c h a n g e . The au t h o r i t y is a p r i v a t e s e lf-r egula-t o r y bod y. Du ri n g m a ny y e a r s o f p u r s uin g st o c k-broker mis d eeds, I found

Retirement Funds Sink Into Vast, Complex Black Holes; And Under The Radar

Don Bauder

These Are Right for Client?<br /> <br /> WFP Securities is a brokerage house headquartered on Cornerstone Court in Sorrento Valley. It is one of an interlocking network of financial companies with offices mainly in Southern California. The brokerage boasts on its website, “Our motto is simple… Always do what is right for the client.” <br /> <br /> Uh, sorry. A slew of irate clients don’t feel that way. No fewer than 16 arbitrations and 4 written demands have been registered against the firm and its web of enterprises. Most of the complaints are against WFP. The two primary spiders in the web appear to be Louis Schooler, who owns 50 percent of the brokerage’s parent company and is president of Western Financial Planning, and his brother, John Evan Schooler, president of WFP Securities and Western Financial Advisors.<br /> <br /> The major beef is that clients were put in highly speculative investments that were inappropriate for unsophisticated people of modest means. Those allegedly crapshoot investments often paid fat commissions to brokers, many of whom are named in the arbitration cases. For example, the Beverly Hills law firm of Aidikoff, Uhl, and Bakhtiari is handling three arbitrations totaling $7 million in claims. The brokerage house and related individuals “failed to conduct proper due diligence on many securities that turned out to be Ponzi schemes,” says attorney David Harrison. “A firm has an obligation under regulatory rules to conduct due diligence.” WFP sold shoddy products that were not suitable for investors, many of whom were retired, he says.<br /> <br /> Here are some of the complaints filed by investors who claim they have been burned by the brokerage and its affiliates: unsuitable recommendations, negligence, breach of contract, breach of fiduciary duty, negligent supervision, fraud, negligent misrepresentation, violation of the California Corporations Code, lack of due diligence, putting customers in Ponzi schemes, selling fraudulent investment products, deceit and omission of material facts, selling of illiquid investments, failure to disclose brokers’ compensation, elder abuse, breach of implied covenant of good faith and fair dealing, violation of New York Stock Exchange and National Association of Securities Dealers rules, violation of the California Consumer Legal Remedies Act, and entrance into unauthorized transactions.<br /> <br /> When investors sign agreements with brokerages, both sides pledge to take their disputes to mandatory arbitration. These are handled by the Financial Industry Regulatory Authority, which was created in 2007 in a merger of the National Association of Securities Dealers and the enforcement arm of the New York Stock Exchange. The authority is a private self-regulatory body. During many years of pursuing stockbroker misdeeds, I found that the New York Stock Exchange’s enforcement group was simply a joke; it would have given a clean bill of health to Charles Ponzi. But the National Association of Securities Dealers was at least moderately diligent in cracking down on bandits — small-time ones, anyway. It famously missed one big-time bandit: Ponzi schemer Bernie Madoff was once vice-chairman of the National Association of Securities Dealers and quite active in association leadership.<br /> <br /> The Financial Industry Regulatory Authority boasts that battles between brokers and their customers are resolved by “impartial persons” who are knowledgeable about the securities industry. But it can take much of a lifetime to understand the byzantine byways of Wall Street: how can such people be impartial? That’s why many maintain that arbitrations are stacked in favor of the brokerage houses.<br /> <br /> For this column, I will focus primarily on an arbitration filed by San Diegans Connie Coe and Fraser and Cynthia Cathie. It is being handled by San Diego attorney Ron Marron and his assistant Paul Hall. I asked the Financial Industry Regulatory Authority how many arbitrations had been filed against WFP and related enterprises. It wouldn’t talk. I also asked what defenses the brokerage and its cousins were using against the charges. Again, no talkee.<br /> <br /> I submitted questions to the brokerage and its Los Angeles–based law firm. They refused to answer any questions, although the lawyer gave me one quote, which is below. Fortunately, I was able to get summaries of the arbitrations and written complaints from a lawsuit filed by WFP’s insurance company on February 16 in federal court in Los Angeles. <br /> <br /> The insurer’s lawsuit appears to reveal the brokerage house’s defense strategy. The brokerage asserts that almost all the complaints revolve around four dubious investment products. Then the complainants tossed in other products that had plunged in value because of market forces, not because of wrongdoing by the brokerage house or its brokers, the company insists, complaining of “cherry picking of failed investments.” If WFP had not sold those four investments to its clients, “no arbitrations would have been brought,” according to the insurance company’s Los Angeles filing.<br /> <br /> One of the four smelly investments was Medical Capital. In July of 2009, the Securities and Exchange Commission charged that the company and related operations had misappropriated $18.5 million of investor funds from a sale of notes, while telling untruths to its prospects. Eventually, assets were frozen and a receiver was appointed. According to the claim statement filed by Marron, a WFP broker placed $30,000 of Coe’s money into a Medical Capital fund. She will recover no more than 15 percent of her funds, says the complaint. “Court filings have revealed that [Medical Capital] was a type of Ponzi scheme,” says the filing, and the brokerage house did not do adequate investigation.<br /> <br /> The WFP web put the Cathies into Desert Capital Real Estate Investment Trust, another of the four investments that butchered most complainants. These were unregistered securities, misleadingly described as short-term notes, according to the claim filed by attorney Marron. The Cathies fear that for the foreseeable future, there are no buyers of these notes; the couple can’t see how they will get money back.<br /> <br /> The third of the four malodorous investments was Provident Royalties. Fraser Cathie was induced to put most of his individual retirement account in an entity controlled by Provident, which went into bankruptcy in 2009. “Thus, $40,000 of Mr. Cathie’s [individual retirement account] vanished, leaving him with a mere $8,309.88 in his retirement account,” says the claim statement.<br /> <br /> The Cathies have gone deeply in the hole by plunking $165,000 into undeveloped Nevada land owned by members of the WFP entities, particularly Louis Schooler, according to the complaint. They were peddled by Western Financial Planning. According to the arrangement, the Cathies signed blank promissory notes that the WFP group could fill in, permitting the withdrawal of money from the Cathie bank account. Marron’s filing calls the land investments “highly conflicted self-dealing transactions.” Customers were told they would be general partners in land ownership, but in fact they had put money in unregistered investment contracts, according to the complaint. A person close to Western Financial Planning denies the charges. “The Cathies have neither earned nor recovered any money whatsoever from these transactions” and still have $80,000 in debt commitments.<br /> <br /> There were many other losing deals, according to the claim. Coe is asking for money damages of no less than $200,000, while the Cathies want $600,000.<br /> <br /> Brandon Reif, attorney for WFP, says, “There are a number of irresponsible claims” in the Coe/Cathie arbitration filing.<br /> <br /> That’s all he will say. In the 16 arbitrations, he will have much more explaining to do.

Under The Radar

On the road yet again Democratic congresswoman Susan Davis, by far the most prolific junketeer of either party in San Diego’s congressional delegation, managed to fit in an eight-day trip to Tokyo before Japan’s earthquake and nuclear disasters hit. The sponsor was the Japan Center for International Exchange, which, according to its website, “conducts political exchange programs for leading American and Japanese policymakers, carries out policy research and dialogue projects on pressing international issues, and works to promote a greater understanding of civil society and philanthropy in Japan and the Asia Pacific region.” The site adds that, “One dramatic way that [the Japan Center for International Exchange] helped expand US-Japan dialogue was by arranging the 1975 Japan Socialist Party visit to the United States, its first visit in nearly two decades. This opened the way for growing engagement between the Socialists and US leaders.” Specific sources of its funding are not provided.<br /> <br /> The center covered a total of $3993 in business- class airfare and other transportation expenses for Davis and her husband Steve, along with the couple’s lodging costs of $1679 and meal expenses of $706. During the trip, from February 19 through 27, Davis and her husband stayed at the luxurious Hotel Okura next to the U.S. embassy in downtown Tokyo while she attended a round of receptions, briefings, and meetings with titles including “Japan in the Global Economy,” “Women in Politics in Japan,” and “Roundtable Discussion with Keidanren (Japan Business Federation),” as well as a banquet hosted by Japan’s then– foreign minister Seiji Maehara. The final three days in the country were left open, with “accommodations, meals, and incidental expenses covered at personal expense.” <br /> <br /> Besides Davis, other invited congressmembers included Democrats Diana DeGette of Colorado; Hawaii’s Mazie Hirono; New York’s Nita Lowey; and Republican Tom Petri of Wisconsin. Democratic senator Jim Webb of Virginia also attended and gave a speech…Jeffrey Davidow, a former Clinton State Department hand, is quietly leaving his position as president of La Jolla’s Institute of the Americas to take a job as senior counselor at Washington, D.C.’s Cohen Group, an international business-consulting outfit run by ex–U.S. secretary of defense William Cohen. No word on who will replace Davidow here.<br /> <br /> Labor pains The San Diego Police Officers Association has its hands full warding off efforts by city councilman and prospective mayoral candidate Carl DeMaio to make the City’s pension plan for cops into a 401(k) retirement system. But judging by its most recent IRS filing, dated June 14, 2010, and covering the 12 months ending in July 2009, the group’s officers haven’t been particularly well paid. Then-president Bill Nemec got $18,611; then-treasurer Rob Lewis collected $5034; and vice president Jeff Jordan made $11,587. The association, involved in a series of lawsuits with the City, paid $443,250 to the firm of Bobbitt, Pinckard & Fields of San Diego and $300,674 to the Irvine firm of Jackson, DeMarco, Tidus & Peckenpaugh. The membership anted up a total of $1,901,429 in dues, and the association reported making an additional $80,078 from advertising.<br /> <br /> Compare those numbers to the San Diego– based United Domestic Workers of America, an affiliate of the American Federation of State, County and Municipal Employees, which, according to its website, represents 65,000 workers in 11 California counties, including San Diego.<br /> <br /> Members provide home care to aged and disabled individuals, paid for by taxpayers, and the union has been a key lobbyist against proposed cuts to the program. In 2010, according to a recently filed disclosure with the U.S. Department of Labor, the union collected $18,025,405 in dues and agency fees, had net assets of $10,931,118, and spent $1,072,803 on “political activities and lobbying.” <br /> <br /> Its highest-paid employee, executive director Douglas Moore, received $225,925 in salary and an additional $17,243 in “disbursements for official business.” Other well-compensated workers included political/ legislative director Jovan Agee, with a total of $119,187; director of field and organization Johanna Hester, $116,782; regional field coordinators Donta Harrison ($110, 662), Ricardo Cisneros ($110,040), and Michael Loza ($104,771); and chief negotiator Yvonne Olivares-Maldona, $93,764.<br /> <br /> The union’s president Laura Reyes received $83,005.<br /> <br /> — Matt Potter <br /> <br /> The Reader offers $25 for news tips published in this column. Call our voice mail at 619-235-3000, ext. 440, or fax your tip to 619-231-0489.

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