2334 FBF: Investment Fraud on Wall Street with John Lawrence Allen Former LA Deputy District Attorney & Author of 'Make Wall Street Pay You Back'

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Welcome to the Creating wealth show. This is your host, Jason Hartman. And thank you so much for joining me today. We'll be back with today's guest or segment in just a moment. John it's my pleasure to welcome John Lawrence Allen to the show. He is a securities litigation attorney helping investors recover funds lost through investment fraud or incompetence. He's a former Los Angeles deputy district attorney and the author of a new book entitled make Wall street pay you back. And of course, you know, over the years I've said with some degree of sarcasm that Wall street is the modern version of organized crime. And my commandment number three for successful investing is maintain control. Because when you don't maintain control, you le yourself susceptible to three major problems. Number one, and we're going to address that during the interview with John today, you might be investing with a crook. Number two, you might be investing with an idiot. And so we'll address those two. And number three, even if they're honest, even if they're competent, they take a huge management fee off the top for managing the deal. So we'll kind of dive into this. John, welcome. How are you?

I'm good. How are you today?

Good, good. Well, it's great to have you. And just to give our listeners a sense of geography, where are you located?

My office is in White Plains, New York. I used to have an office in California and midtown Manhattan and I've now moved out to the Connecticut countryside to work in White Plains.

Fantastic. Well, tell us about Your background and how you came to write the book.

Well, I wrote my first book, Investor Beware, 20 years ago, and that was actually more than 20 years, I guess it's been now, almost 25 years ago. And that was the result of having been in the industry. I spent seven years in Wall street and I invented an arbitrage training program. That's how I went into Wall Street. And I got very, very dissatisfied with the hucksterism and the outright unethical activity I saw around me. And it got so bad that I quit and I wrote my first book, Invest Beware, to help people protect themselves from the way Wall street operates. But over the last 20 years, the entire investment landscape has radically, radically changed. And the entire way brokers do business has changed. And if investors aren't aware of these changes, they may very well end up becoming victims of the Wall street community.

You know, when you say those changes, I don't know what you're referring to, so I'll have you tell me. But is one of them one way that I think large corporations really oppress people is through the Commercial Arbitration Act. And I know so many years ago in the 90s when there was a lot of securities fraud in the news, of course, that seems to be an ongoing issue. Of course. And you know, a lot of people had lost money in the stock market. They made some new rules. I don't know, you know, exactly which agency that came out of. Maybe it was the FCC or finra. I didn't mean to say fcc. Did I say that? The sec, the Scoundrels Encouragement Commission, as it's been called. But is that arbitration? Because arbitration really, I think, takes away people's rights quite a bit.

Well, it's an interesting. There's two sides of that coin. Yes, they take away people's rights and people don't know it. But if you have a problem with a broker dealer, that's, you know, any licensed firm that buys and sells securities for you. If you have a problem with the representative who works in a broker dealer, when you sign your contract with them, you waive your right to a court trial or a jury trial. That means you don't get to be in front of a group of your peers. You don't get to have any of the help that you would get in a courtroom or in a civil or jury trial. That's the negative side, but there's a positive side to it. The positive side is you're going to go into arbitration which is significantly less expensive, significantly less time consuming, and far swifter justice than you could ever get in a court. Let's say you win a court case and what's going to happen? Well, the arbitration, not the arbitration securities firm is going to appeal that matter and you're going to get stuck in court for another couple of years. On the other hand, if you go to finra, Financial Industry Regulatory Authority arbitration, you're going to be in front in a case of $100,000 or more, three arbitration judges who are going to rule very quickly and you're going to have a result very quickly. And if you win, they have to pay within 30 days. You don't have any of the problems of collecting or appeal or the lengthy process that's involved in the court proceeding. And there's one more positive I find in arbitration that is, if you get into a complex securities, there are complex issues and facts that the average juror really can't grasp that well. But these arbitrators are usually business people and they have a business background and they understand wrongdoing when they see it and they're not afraid to make an award. The one thing that is difficult is to try to get punitive damages. That's very difficult in arbitration. I've attained it more than once. I've gotten it. But it's a difficult road to hoe to try to get punitive damages. And lastly, you don't have to get bogged down in a motion practice where a wealthy brokerage company with an unlimited pocket can paper you to death with motions and motions that compel and sanctions and hearings and depositions and requests for admissions and all the discovery stuff that goes on. None of that's allowed in arbitration.

I mean, I've been in arbitrations. They have depositions, though.

Not in federal securities cases. Yes, it's civil arbitration, though. If you go into a FINRA arbitration, there are no depositions, there are no requests for admissions, there are no interrogatories. You can do a document request, but it's very limited, which means that you're going to save a great amount of time and a great amount of expense and a great amount of heartache. So all in all, oddly enough, I actually, when I started, I didn't like or perceived not to like the arbitration process. But now that I've done it for so many years, I think that it's a good methodology to get swift justice.

Okay, well, I don't want to belabor that one because it'll take away from the sort of the crux of our discussion, but it's good to hear your point of view on that.

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So the thing you were saying in terms of the laws not being in favor of the consumer in this case, the investor is no jury trial. And what was the other one?

No court trial.

No court trial at all. So, yeah, arbitration. But were there any other things you wanted to mention there before I got you on this tangent of arbitration?

Well, I just, I think that the cost effectiveness is so overwhelmingly, you know what it does? It puts you on an even footing with someone who has an unlimited budget, which you can't do in litigation unless you're willing to spend the money to ante up. But in arbitration, you're on an equal footing with your opponent. And if you have a competent, skilled, highly qualified and knowledgeable attorney who knows the ins and outs of FINRA arbitration, you got a long way towards getting your money back.

So that may be different. And again, I don't want to belabor this arbitration point too much because there's other issues, of course, but it sounds like it's better with a FINRA situation for people that have been defrauded, just lost money because of incompetence on Wall Street. But in a typical arbitration, those arbitrators, I think, I'm pretty sure they really lean toward the person who put the arbitration clause into the contract because they view them as repeat customers. And we'll call it part of the vast walls, the vast arbitration conspiracy. It blows my mind that aaa, the American Arbitration association, is actually a nonprofit organization. The fees are enormous and we all pay taxes to have a public court system. And listen, I'm no fan of prolonged litigation or litigation at all. But gosh, you know, why do you have to pay for a private court, which in the typical arbitration, probably not. Finra, with what you explained, acts, in my opinion, as a bit of a kangaroo court, Especially the fact that these things are confidential and, you know, you get these real estate developers that develop these condo properties and so forth, and, you know, they all put arbor arbitration clauses in their contracts and you can't do a litigation search on them before you say, buy a property to see if they're a bad apple, if they've been sued by hundreds of investors. It's all hidden from public view. And that just makes me think of a third world banana republic country where they've got These kangaroo courts and, you know, our whole system is based on transparency. At least that was the original idea of it. So that's my bone to pick with arbitration.

Well, you raise a good point, and I would tend to agree with you. Up until a couple years ago, arbitration had two panel members that were public and one who actually came from the industry. And it was in many cases biased in favor of the arbitration people. That meaning the broker dealers. And I think the statistics, not for me personally, but the statistics generally bear out your concerns. People don't do all that well in arbitration. They win about half their cases. And if the cases they win, they win about half the money they got back. So I don't put that as good odds. That's not been my experience. But I am very selective in the cases I take and I put in a great deal of time to win these cases. And I understand that you're not going to get money from three business people unless you can find a way to emotionally connect your client with them. If you can't find a way for them to care about your client, they're not going to give you anything back. But if you can find a way to develop the case, to find an emotional connection, something that touches them, they're going to be far more willing to knock the arbitration. When I say to go after the.

Broker dealer for fraud, let me take a brief pause. We'll be back in just a minute.

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Let's talk about what are some of the causes of action? I mean, you know, of course, fraud is one of them. But you also mentioned incompetence. And when someone has a securities claim, whom is the claim directed at? You know, you've got the advisor who works at Merrill lynch, which in my opinion, or whatever firm. I'm just saying Merrill lynch because they're big, but they could work at any firm. Ameriprise, Merrill lynch, whatever, okay? And I tend to find those advisors are usually just slick salespeople wearing nice suits, okay? They're nothing more than salespeople. They have cursory knowledge, very little real depth of knowledge. Usually. Of course, I'M making a generalization here, and I apologize to those smart, great, ethical, good brokers out there, because there are some.

But.

But you've got the broker, you've got the investment banker, you've got the firm. Who are you really? You've got the company. There's so many layers to this.

Well, let's talk about that for a second. People don't know that you can hold a brokerage firm and it's renders of representative. That's the stockbroker who provides you with a recommendation for giving bad advice. And people think, well, that doesn't sound right. And if you gave me bad advice, I mean, if I get advice and the stock doesn't do what he thought it's going to do, how can he be responsible? And the corollary, or the answer to that is this. Under the FINRA guidelines and the securities and Exchange Commission guidelines, brokers are required to know your risk tolerance, time horizon, financial goals, and anything that can affect your capacity to invest. That means if you're employed, unemployed, medical problems. But mostly what they have to do is they have to match the correct product with your goals, objectives, risk tolerance and time horizon so that they make a recommendation that's suitable for you. So if you're 35 and have a good job and you want to take some risk with having 70, 60, 75% of your money in the stock market, probably not bad. But the opposite to that is, what if you're 65 or 70 and you're retired and living on your retirement assets? It would not be appropriate for a broker to recommend that you buy a highly speculative stock or that you have 70 or 80% of your securities of your investments in equities and stocks.

Right. They seem like they do a pretty. I mean, I'm sure there are brokers out there that do that kind of stuff, but it seems like they do a pretty good job of making all the appropriate disclaimers. And you got to sign a mountain of paperwork that of course is all written in their favor and has a zillion disclaimers and a lot of legalese. I mean, don't they pretty much cover themselves on that type of stuff?

Usually the paperwork covers them perfectly fine, but that doesn't relieve them from their obligation. A broker that makes a recommendation to a customer has a fiduciary duty to that customer to put the customer ahead of the broker. So let's say I have a client who wants to make an investment of a couple hundred thousand dollars and I want to put them in what quote is a suitable investment? Based on what they've told me about themselves and let's say, putting them in a suitable investment, I can make, let's say, a $200,000 investment. Maybe I can make $100, $150 in fees. However, if I put them in something that the brokerage company is promoting or pays a double commission or is highly speculative, I might be able to charge them significantly more, let's say $1,000. So if I can make $1,000 on a improper or unsuitable investment and 100 or 200 on one that's suitable, that puts in kind of a trap for the broker to say to themselves, well, you know, I'm really going to forego that extra 800 bucks I'm going to make on this transaction and do what's right for my client. How many people have the ethical and moral heart to do that?

Not a lot of people. Certainly on Wall street, not a lot. And, you know, when you say that, it reminds me of two investments that are really just laden with heavy commissions. From what I understand, one of them is oil and gas, and another is life insurance. The fact that life insurance is even kind of promoted as an investment bugs me in some ways, although the needle might be moving a little bit for me on that. But still, I just think it's insurance, you know. But those. I mean, like, some of these things have extraordinarily high commissions. I mean, I'll give you an example of one. One time, a life insurance guy came in to my office and he wanted to market his life insurance products as an investment to my investors in my real estate firm. And he slapped down, literally, a copy of some checks that he earned on some policies that he sold. And one of them was, like, a $7 million life insurance policy. And I'm not going to get this exactly right, because I don't remember, but the check was for, like, $250,000. I mean, it was insane how. And he says, look, you know, I could split this with you. I'm like, well, don't I have to have a license or something? And he says, well, there's a way around that. We'll reclassify the fee. And, you know, obviously, I didn't do any deal with him, but I mean, these. Some of these commissions on these things are just extraordinary. On these oil and gas deals, I hear that some of them are like half of the investment amount. You know, if they get an investor to put $100,000 into some oil and gas deal, the Salesman will make 50 grand. Whoa, that's crazy.

Yep, that's true. And in fact, if you want to go back a little bit further in time, there was a period in the late 80s and middle 90s where Prudential bash, which you know, the Rock Solid, sold 400,000 of his customers $8 billion in phony partnership deals. And those deals, they were making 30, 35 and 40% off the top before the customer saw a single dime.

Unbelievable. That's just crazy. So, okay, so the broker or the investment advisor, the registered rep, I don't know exactly what to call them, but they steer the investor into something that's not as good for them, that obviously pays them a higher fee. Fee. Right. So that's one form of, that's one actionable thing. Now how is the investor ever going to find that out though? How does the investor know what the menu of fees is for the things that advisor has to steer them into available to them?

Well, that's a very tough question. And that's a very good question. And the reason is because on a lot of these products that they're selling a product, the commission's in the product and the customer will never know. So you on that $200,000 example, if the broker makes 5,000, you know, 2.5% fee, and that's in the cost of the 200,000, that means that really 195 of your money actually ever went into the investment. And there's no way you can know unless you read the prospectus or you ask the broker. They're certainly not going to volunteer and tell you, oh yeah, I'm going to make five grand on this trade. And also that also happens on principal transactions. If you ever buy a stock or a bond, most bonds are sold on principal transactions.

What is a principal transaction? What does that mean?

A principal transaction is where there's no commission charged. The fee is in the price of the bond. So as an example, if I call up my broker and say, you know, I want to get a 10 year bond, and let's say you can get a 10 year bond for 2.3% return per year over the 10 years. So you buy the bond with this 2.3%. You don't know what the brokerage firm picked that up for. Let's say they picked it up for 2% and they charge you 2.3. That difference in that spread is an enormous markup. It could be many thousands of dollars. So you just don't know in a principal transaction. And that's another way that brokerage companies can get. In fact, I've got a case right now. I have a lady who had a very, very, very substantial portfolio, many millions of dollars, and she was charged over $3 million in markups and fees on bond transactions. And she never knew it. Over the course of a six year period.

Wow. Wow. So $3 million in fees and markups on what?

On municipal bond transactions. The safest, most conservative of all transactions.

Yeah, yeah, right. And I'll tell you something. If you ask me a lot, a lot more municipalities are going to be filing bankruptcy in the future because there's so many of them underwater. Of course, we've seen that with Detroit, Vallejo, California, some others, but very interesting. So $3 million in fees, that is unbelievable. What was the principal investment, though? I've got to have some comparison.

They had, she had $30 million in municipal bonds, so 10% in a laddered portfolio that never should have been touched. That had never been. There should not have been any transactions. And in six years, they traded $120 million worth of bonds in her portfolio.

Unbelievable. That's just insane. So she's in process. Right. Did you recover for her yet?

We're in the arbitration process now.

How long does that take when it's FINRA arbitration? What's the length of that process?

Somewhere between 11 and 14 months on average.

Okay, all right. And what is the amount money? I mean, obviously that's a large client with some big money you're talking about in terms of the investment size and the investment losses. But how much does someone need to lose in order to make going to a FINRA arbitration worth it?

Well, it's a good question. I would answer that in twofold. First of all, anybody that wants to seek help should only hire an attorney that would be willing to work on a contingent fee so they don't end up spending a lot of money trying to get back their losses. That's item 1 2. There are different levels of arbitration. FINRA within the last year and a half, has established a new type of arbitration called small claims. They call it simplified arbitration.

Oh, that's great. Like small claims court kind of idea.

Kind of, but a little different. For FINRA, small claims is any loss below $50,000. And if you have a loss below $50,000 and you go into this simplified arbitration, you don't even have to appear at a hearing. You submit the entire claim on paperwork. The respondents, the broker, dealer, file an answer and one arbitrator makes a ruling without you ever having to appear. So it saves you testimony, litigation costs, Travel expense, hearing fees, expert testimony, it's all done in the pleadings. Now you don't have to do it that way. If the case is 50,000 or smaller, you have a one party, one arbitration chairperson, that's it. You don't have a panel of three, you have a panel of three above 100,000. So really I would say anybody that loses, you know, 10,000 or more, even 5,000 or more, it's certainly worth it to pursue it. I don't think you probably get many attorneys to handle a $5,000 case. But I've developed in fact a methodology to help people with cases between 10 and $50,000, which is on my website. And I take them into the small claims arbitration process and the whole thing can be done for very, very little money. And the best part is unlike regular arbitration, small claims are usually resolved in seven months or less.

Excellent. So give out your website, if you would. That's a great resource. Thank you.

Well, my website, the same as my book book, is make Wall street pay you back and the website is make.

Wall street payyouback.com make wallstreetpayyouback.com and you've got the small claims information on there, which is fantastic. But then also for larger, larger losses, they can hire you or another attorney.

Correct.

Okay, good. So talk to us more about some of the other types of fraud out there. There's incompetence, there's, I guess I'll call it steering to the product that pays the highest commission. What else is there?

Well beyond the suitability issues which are varied and numerous and that expands a lot of things that brokers might do. They might put you in as an example. As I said before, if you're 70 years of age, you probably shouldn't be in a 75% stock portfolio. On the other hand, if you're 75 and they put you 100% in one investment and over concentrate you, that's not correct. That's not suitable either. So it really doesn't matter what age you are. If a brokerage company takes all your money and puts it in one investment, that's clearly unsuitable because if that investment goes down, even Apple as an example, people did fabulous in Apple, but Apple also had about six months ago a 300 point drawdown. And if you had all your money in Apple, you're hurting. So that's another thing they do. Also churning now churning is where a broker makes excessive buys and sells in your account without an interest in making you profits. The broker's interest is in getting as many commissions as they can from your account. And what's interesting is in a churning case, I've had cases in churning where the client never knew the account was churned because they didn't lose any money. The account was churned for a couple years. They ended up, you know, the stock market was up 30% over a two year period. Their account was flat. They couldn't understand why. And when I dived into it, I found that, well, it was flat because 200,000 in commissions were paid over that period. And if you hadn't had the 200,000 in commissions, you would have been up 200 grand and you would have been up pretty much where the stock market was. So if a broker exercises control over the account and buys and sells excessively to generate commissions, they've turned your account and that's actionable.

So in other words, you don't have to have actually lost money in the aggregate. You could still have an investment, your portfolio could still be up. But just because of the malfeasance of the brokerage firm or the individual broker, you could have lost money by through churning. Now the churning thing, is that as big a deal anymore? Because it seems like the industry has moved to a model of managed money where all they're really doing is you give them $100,000 and they're charging you, you know, 2% a year or whatever the number is. And you're not really paying for trades. But one of the scams is a lot of times you're paying in multiple layers. So you'll give the guy that's sitting at Merrill lynch your hundred thousand dollars and he'll say, well, I'm going to charge you 2% a year or whatever the number is. And so he doesn't make money on churning per se, but then what he does is he goes and he puts your money into a bunch of other funds, like mutual funds, where they're making money inside that fund too because of all these management fees. I mean, that's just. Wow.

Well, you're absolutely correct. And that's one of the things I decide in the book. The methodology on Wall street has shifted from a commission driven business to an asset gathering business. So the churning claims are down dramatically, but they're not out. And the reason they're not out is because there are products called managed futures. And most of these managed future products really don't exist to have the customer make money. They exist for the broker, dealer to reap huge commissions from buying and selling at a high velocity commodities. And what's interesting about these managed futures is most of them have a program in which let's say you give somebody 50 grand and let's say they have a hot hand and their commodity, managed commodity accounts have doubled and you've gone from 50 to 100,000. The prudent thing to do would be to pull your 50 out and play with their money. But that's not what they do. What they do is if you go to 100,000, they merely double the amount of contracts they're trading so they can generate double the commissions. So if you had a $50,000 account and you were doing let's say five contracts and a trade and you now have $100,000 account, they double that, they go to 10 contracts. If you have a two, let's say you make incredible profits, you go to 200,000, your 50 has grown to 200. Well, you're now going to go from five to 20 contracts, which means that even the smallest move after those enormous profits will wipe out all your gains in a very short time. Classic example of that is Long Term capital, which made 30, 35, 40% a year for three years and then in six weeks wiped out not only all of the gains, but the $4.5 billion that was still there totally wiped it out when the commodity markets went the wrong way.

Wow. Yeah. Unbelievable. Hey, can I run something by you that I was pitched on and I actually had the guy on one of my shows and it sounded pretty good. It's a managed future deal and I just wanted to see what you thought of it. Sure. I didn't do this investment, at least not yet. But the guy was pretty convincing, I have to tell you. And so he works in Chicago and is on the floor of the exchange there. And the big pitch is that Japan, which most of us know is massively in debt, the whole country is just in a mess. I mean the US has two, but the US has the reserve currency and some different circumstances, obviously. And the pitch is that Japan will default on their debt. And what you should do is over a five year plan with a $30,000 minimum investment, let me buy options on this debt that it'll default, let me short the Japanese debt. It's just saying it's going to default at some point and there will be what's called option decay. Now granted, I don't have a big understanding of this, I'm just a consumer, but there's something called option decay. And, and as the option decays, what he's basically doing is over the course of five years using $500 per month of your $30,000, I think, I don't know the math on that. Yeah, 60 months, right? Yeah, it's 500amonth to pay for option decay. But at some point in that five years there's going to be a default and you're going to win, you're going to make money. That's the prediction. Of course it's a prediction. What do you think of that? Well.

That'S a long term bet. And I guess the thing I'd be most concerned about would be do they have the. Since this is, I presume this is not an exchange traded fund, it doesn't trade at any known stock exchange or commodity exchange. You have to worry about the counterparty risk of the person should it do what they claim it's going to do, are they going to be able to pay you? And a lot of these counterparty risk cases have come up during the 0809 crisis when a lot of off market contracts were traded and they couldn't make good. When the unlikely event occurred, like aig, which was betting on collateralized debt obligations, they said, oh no country's ever going to go into bankruptcy. We're never going to have to worry about that. And lo and behold, Greece goes into bankruptcy. And AIG almost went under. It took us close to a trillion dollars to bail out aig, which I think was a big mistake. But there was a counterparty who couldn't pay.

Maybe the concept is a winner, maybe it actually works, but then the counterparty just defaults and they can't pay you.

Yeah, that's why I try to stick with anything that's exchange listed so that at least I know they're going through a well known New York stock Exchange, the comex, the nasdaq, and there's some third party who's trying to make sure that they're going to honor their margin requirements.

Yeah, good. Okay, good point, good point. Okay, what else should people know? And do you want to talk about any other types of investments? I mean maybe you want to mention just quickly gold. I know that that's not a huge market, but we touched on oil and gas. If you want to mention any other alternatives.

Well, I think for gold, my suggestion would be anybody who wants to invest in gold. I don't have a problem with them investing in gold. I do have a problem in how they do it. I don't think anybody who wants to own gold should ever use leverage options or margin. They should only buy it for cash. They should take Delivery. They shouldn't allow any third party to store their gold. And they should only buy gold from a reputable dealer who's been in business over 10 years. And then finally, only gold bullion, not new as matic coins, which are supposed to have great asset value. And when I say bullion, I mean a Canadian maple leaf, an American gold eagle, South African Krugerrand, an Austrian Corona, some well known gold bullion that's difficult to make in a what I would call a forged or dishonest way.

Right, right. The scams in the numismatic market are rampant. And every gold dealer, when you call them up, you know, a lot of times they're advertising on the radio and they're promoting the concept of gold or silver or platinum or palladium and they're talking about bullion. But when you call them, they try to upsell you to numismatic coins because there's just much higher margins.

Tremendous, tremendous margins. You're talking somet 40% margin on a new Hispanic coin.

Right. But you know, that's not a security necessarily. I mean, are you talking about. See, I think the only way someone should invest in gold or precious metals is in the way where you actually take possession of it.

I agree.

You're talking about inside of a fund, right? I mean, I mean you're not talking about. I mean there are frauds where people actually take possession and they find out that the metal is fake. But I don't think that's super common.

Probably those are very, very rare. And those are usually not government sponsored product like American Eagles or Maple Leafs from Canada. And they're usually sold by disreputable dealers. But if you buy gold from a reputable dealer and have it shipped to your home, put it in a safety deposit box or bury it somewhere, that's the safe way to do it. You don't want to have them tell you, oh, we'll store it for you. No, you want your gold. If you're going to buy gold.

I agree with you. The point of that type of investing is to be in possession of it. Absolutely. And I just can't believe the people that go for these deals where they say, oh, they're going to store them in a vault in Switzerland. Yeah, right.

And another thing now, another section of my book, make Wall street pay you back is as you just said very early on, we're no longer a commission driven business. We're a management business where they gather assets and send them out to management. And that adds a layer of protection to the broker, dealer and the registered representative, the stockbroker. However, that doesn't stop them from still having to make a suitable recommendation to this manager. So if when you go to a broker dealer and you give them your assets and they agree to manage them and they're not going to charge you commission, they're going to charge you a percentage of the assets they have under management, you need to be sure that whatever manager they hire, that that manager is, and the manager's style is in keeping with your goals, objectives, risk tolerance and time horizon. You don't want to go into an all equity small cap micro cap fund if you're trying to invest in what is supposed to be on the stock investing side, a more conservative portfolio. And also you want to be sure that the style of that manager doesn't involve unless you're willing to take that risk. You know, I'm not abetting, I'm not saying risk is bad. You just need to know about it, make an informed consent about it and be willing to accept it. But you need to be sure that that style of that manager is in keeping with your risk assessment. Because if you don't want to take a lot of risk, then you can't have options, derivatives or futures or leverage employed by that manager. So you need to know the style and the type of investments and where they're going to make those investments.

Toward the beginning of the show, I talked to you about all the different layers of this onion and how you, who are you really? Who is your claim against? We've talked about registered reps, brokerage firms. What about the other people in the food chain? And then all the way up to the actual company whose stock you own in the board of directors and the CEO and the CFO and the cto. All of these guys are just skimming off the top. I mean, the Dennis Kozlowskis of the world and all the rest of them. I mean, there's a lot of fraud going on at that level too, where, you know, the brokerage firm could be okay, the rep could be okay, but the actual company whose stock you own, do you go after them too?

Well, I try to make a rule not to go after anybody who has a questionable pocketbook to recover from. Generally when there is a corporate crime or a corporate fraud, most of the time, not always. Most of the time there aren't assets sufficient to recover for the shareholders because.

They'Ve sucked it all out of the company. And the company is basically an empty.

Shell or Enron or Adelphi, if we will go Back a few years to all of the security fraud that was going on. But interestingly enough, if you do it at a grand enough scale, you get to walk away scot free and you don't even go to prison.

It's unbelievable.

A perfect example is Corzine, who was the governor of New Jersey. MF Global and John Corzine, and he was a huge donator to the Democratic Party and a big supporter of Obama. And he took over a company, MF Global, and they were just a plain bread and butter vanilla commodity broker. They bought and sold commodities and they made a few pennies off of the buying and selling of these commodities. Well, he didn't think that was enough money. So he went and made a multi million dollar, a billion dollar, I think 3.6 to be exact. Billion dollar bet on the debt of other countries and companies. And that bet went awry, very badly awry. And Corzine went in and he claims he did not do this. He claims he didn't know. But under his supervision as the chairman of the company, they invaded the assets of their own clients and stole $1.3 billion of assets from their clients to cover their bad bet.

And that's jon corzine. And 1.3 billion. That's billion with a B, not million. Okay. Huge. Yeah.

Took it out of their clients accounts. They got caught. They had to return what money they could find. He paid a fine and he walked away without going to jail for committing absolute grand larceny on a monster scale.

Un freaking believable. I mean this is so disgusting. It's just, it's just disgusting. And it's amazing to me. Like one of the things I tell my listeners is don't trust resumes. Ken Lay with Enron, he was buddies with George Bush. Okay. You know, I'm sure the pictures were all over the company for people to see when they came in. Bernie Madoff was president of nasdaq. John Corzine was governor of New Jersey. I mean your resume doesn't get much better than any of those, right?

Oh absolutely. And let's add to the list Mr. Mazzillo, who was the chairman, Countrywide, who got bought out by B of A. And he was one of the large perpetrators of the entire mortgage debacle. And people lost billions, maybe even trillions, and he walked away scot free. And he had quote, his friends of Maslow who got mortgage, I should put it this way, members of Congress and the Senate who got special mortgages from Countrywide at highly reduced rates because they were friends of Mozzullo and he walked away scot free.

It's just a total insider's game. That old question, you know when the broker takes his buddy down to show his buddy his new yacht and his friend says, where are all the clients yachts? That's what people have to understand. Wall street is an insider's game. And the insiders are the ones who get rich because the insiders have all the connections and they basically make the laws because they have lobbyists, they have lawyers, they have PR firms, they have accounting firms. And the game is just so stacked against the investor. I don't know why the general public is still playing in this field. They're totally outgunned. And then you look at Michael Lewis and his great new book Flash Boys, which I'm sure you're familiar with. I mean, are these Goldman Sachs? I mean, are they just a totally criminal organization too? Probably. I don't know. It sure seems like it. It's just unbelievable. I mean, in Flash Boys, which I highly recommend, Michael Lewis talks. He just profiles all of these companies that are like getting in line to do this high frequency trading where the speed of light is not even fast enough anymore at 186,000 miles per second. And all the people profiting from all of this stuff in the food chain, it's, it's beyond despicable. It's totally rigged.

It's very difficult. It's a hard game to play. But the other side of the coin is with the Fed maintaining these totally illusionary 0% interest rates, what else can you do? Everybody's having a hard time trying to make ends meet. And they're forced almost to going into the stock market.

Yeah, they're forced to do. See, this is bad monetary policy like we have forces people to take inappropriate risk because they can't get any yield in their bank account. And it's so sad to see the people that are older and have really done the right thing all their lives. You know, they saved money, they planned for the future, they delayed gratification, and now they got a few bucks, it's sitting in a bank account being destroyed by taxes and inflation, especially inflation, which you know is higher than what the government would have us believe and they just can't get any yield. So they go in and they play with the stock market and you know what happens? I mean, that's your business.

Yep. It really is sad but true.

Yeah, it really is sad. Well, this has been a fascinating discussion. A lot of people tell lawyer jokes, but I'm glad There are lawyers out there who really help people get some justice and one of them is you. So thank you for doing that. And give out your website again. Of course. The book is on Amazon.com I definitely encourage people to read it. Make Wall street pay you back. The website is the same name, right?

Yeah. MakeWallStreetPayYouBack.com and there's also a section in the book about arbitration, what it's like, what you have to know, what it's like to go through one so people won't feel so nervous about going through the process and realizing that they have rights. They ought to stick up for their rights and not be afraid to pursue even Merrill lynch or Morgan Stanley or Goldman Sachs.

Good, good stuff. Well, John Lawrence Allen, thank you so much for joining us today. This has been very informative.

Thank you very much, Jason and I appreciate the time.

I've never really thought of Jason as subversive, but I just found out that's what Wall street considers him to be.

Really? Now how is that possible?

Simple. Wall street believes that real estate investors are dangerous to their schemes because the dirty truth about income property is that it actually works in real life.

I know. I mean, how many people do you know, not including insiders who created wealth with stocks, bonds and mutual funds? Those options are for people who only want to pretend they're getting ahead.

Stocks and other non direct traded assets are a losing game. For most people. The typical scenario is you make a little, you lose a little and spin your wheels for decades.

That's because the corporate crooks running the stock and bond investing game will always see to it that they win. This means unless you're one of them, you will not win.

And unluckily for Wall Street, Jason has a unique ability to make the everyday person understand investing the way it should be. He shows them a world where anything less than a 26% annual return is. Is disappointing.

Yep.

And that's why Jason offers a one book set on creating wealth that comes with 20 digital download audios. He shows us how we can be excited about these scary times and exploit the incredible opportunities this present economy has afforded us.

We can pick local markets untouched by the economic downturn, exploit packaged commodities investing and achieve exceptional returns safely and securely.

I like how he teaches you how to protect the equity in your home before it disappears. And how to outsource your debt obligations to the government.

And this set of advanced strategies for wealth creation is being offered for only $197.

To get your Creating Wealth Encyclopedia book one complete with over 20 hours of audio. Go to jasonhartman.com store if you want.

To be able to sit back and collect checks every month. Just like a banker. Jason's Creating Wealth Encyclopedia series is for you. This show is produced by The Hartman Media Co. All rights reserved. For distribution or publication rights and media interviews, please visit www.hartmanmedia.com or email mediaartmanmedia.com Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate or business professional for individualized advice. Opinions of guests are their own and the host is acting on behalf of Platinum Properties Investor Network, Inc. Exclusively.