Heard off the street: Gullibility will always creep into investing
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Those who believe four years of financial crises, scandals and collapses just had to make investors less susceptible to get-rich-quick offers should take a look at the Securities and Exchange Commission v. Gurudeo "Buddy" Persaud.
The civil complaint, filed in federal court in Florida last week, is evidence the gullible will always be with us.
Regulators accused Mr. Persaud -- a 47-year-old Orlando, Fla., resident -- of operating a Ponzi scheme through an investment firm aptly named White Elephant Trading Co.
The agency alleges Mr. Persaud used White Elephant to raise more than $1 million from 14 investors in three states between July 2007 and January 2010. The investors were primarily family members, friends and clients of the brokerage firm where Mr. Persaud worked. They included a widow working two jobs who invested $175,000 in life insurance proceeds from her husband's death.
According to the lawsuit, Mr. Persaud promised investors risk-free annual returns of 6 to 18 percent from his private equity fund. A marketing brochure assured them the fund's main objective was preservation of capital.
What Mr. Persaud did not tell them was that in making at least 90 percent of his trading decisions, he relied on market forecasting services "based on lunar cycles and gravitational pull," according to the lawsuit.
"Persaud believed that when the moon is positioned so there is a greater gravitational pull on humans, they feel down and are therefore more inclined to sell securities in the markets," the lawsuit states.
The SEC alleges the strategy generated $400,000 in trading losses for Mr. Persaud and that he diverted a minimum of $415,000 more to pay for personal expenses. He papered over those problems by paying early investors at least $225,000 provided by new investors, according to the complaint. He is also accused of falsifying account statements, telling one client there was $175,313 in an account when in fact White Elephant only had $5,300 in the bank.
Regulators want Mr. Persaud to return his ill-gotten gains and pay civil penalties.
Eric I. Bustillo, director of the SEC's Miami office, said in a prepared statement that when Mr. Persaud hid his unconventional trading strategy from investors and operated the Ponzi scheme, "He should have known that an SEC enforcement action was in the stars."
Who says regulators don't have a sense of humor?
Shareholders at nearly three times as many public companies as last year have voted down executive pay packages so far this proxy season, but don't let the numbers fool you.
A Los Angeles pay consultant said investors approved the compensation plans at 72 percent of the 1,821 companies it examined by margins of more than 90 percent. The Dodd-Frank market reform legislation enacted by Congress in 2010 requires companies to hold annual nonbinding referendums -- or "say on pay" votes -- on their compensation plans.
Pay plans at another 19 percent of the companies were approved by margins of 70 to 90 percent, according to Semler Brossy, which tallies proxy voting results at companies in the Russell 3000 weekly.
Only 49, or 2.7 percent, of the companies received failing votes, meaning less than half of shareholders supported their pay policies. That compares to a pay plan rejection rate of 1 percent last year, Semler Brossy reported.
Two of those 49 companies are based in Pittsburgh.
Only 48 percent of shareholders approved the compensation plan at Mylan [ticker: MYL], the generic drug maker based in Cecil. Mylan executive chairman Robert J. Coury was the highest-paid executive among Western Pennsylvania public companies for the second consecutive year in 2011, when he received compensation of $21.3 million.
South Side teen clothier American Eagle Outfitters' [AEO] pay package received support from only 40 percent of its shareholders. Former CEO James V. O'Donnell was the region's sixth-highest paid public company executive last year, pulling in $14.4 million.
Other companies that had their compensation plans rejected included Chesapeake Energy [CHK], Citigroup [C] and Abercrombie & Fitch [ANF].
Companies who receive failing votes are not required by law to modify their pay policies, but many are taking the message to heart. Some are being prodded by firms that recommend how pension funds and other large institutional shareholders should vote on proxy matters.
Semler Brossy said support for pay plans was 30 percent lower at companies whose compensation policies got a thumbs down from Institutional Shareholder Services, one of the proxy advisers. ISS advised shareholders to vote against Mylan's and American Eagle's pay plans.
First Published June 24, 2012 12:00 am