Hard times and Bad Actors

Well, hard times have a way of exposing bad actors. The SEC has stepped in and frozen a firm based in Aventura, Florida, named TCA Fund Management Group which is sadly a Registered Investment Adviser (RIA) firm. I say sadly because my firm is a Registered Investment Adviser firm, but nothing like this one. It ticks me off when I see RIA firms give honest RIA's a bad name. I do not like it one little bit, so take this blog post with a grain of salt if you want.

You can read about the SEC's actions in this press release link: https://www.sec.gov/news/press-release/2020-110

Everyone has opinions, but I have to fault the SEC for approving this firm as a Registered Investment Adviser in the first place on August 13, 2014. Everything about this firm is murky and they use a bunch of investment jargon which is often necessary to con people out of their money. Of course, the firm is innocent until proven guilty. However, I present some evidence to bolster my opinion which again is just an opinion.

They became registered with the SEC on August 13, 2014. However, they were touting their performance before then in a very peculiar fashion. For their TCA Global Credit Master Fund LP, they show a performance table in this document that shows their monthly returns since inception of April 2010. (I am sure they hate the fact that this document is on the Internet now, but your experienced Chief Compliance Officer sleuth has found it.) As you examine this table, specifically the "Onshore Monthly Performance (%) Net of Fees" table, please notice the fact that they never lost any money in any particular month for the period shown. www.portfoliomi.com/pdf/AMI-TCA-FACTSHEET-JAN-2015.pdf. Correct me if I am wrong, but don't you find that just a wee bit unusual?

The second thing that jumps out at me is the location of this "fund." Cayman Islands. Now, come on SEC, why on earth would you approve a firm that is a Registered Investment Adviser when they have an "investment" (and I am using that term very loosely) based in the Cayman Islands? Seriously, you guys need me approving firms as Registered Investment Advisers. I would never approve a firm like this one as an RIA

The other thing that bothers me is that they charge a 2% management fee, plus a 20% of profits Performance Fee. Ah ha! This is a hedge fund! Well, of course only sophisticated investors with the requisite net worth can invest in hedge funds as you know. Their minimum investment is $500,000. Of course, just because you have $500,000 or more to invest does not mean that you are smart. In my opinion, you should read the 2nd Edition of my book, Meet Wally Street. The Reason You're Stupid. There is a link in the right hand column of this blog.

There are many points that I can make here, but look at these items if you will.

1. They were touting performance before being registered with the SEC as an RIA.
2. They mention that their performance was calculated by a "third party administrator," but did not name this firm in this document. How convenient!
3. Their performance never had a losing month! This comes in very handy as it relates to number 5. below.
4. They are based in the Cayman Islands. Most people do not even know where the Cayman Islands are located, their tax laws, their asset protection laws, their treaties or lack thereof with the United States and on and on.
5. They charge a performance fee of 20% based on positive returns which is really nice when you consider number 3. above.

Most people do not realize this, but you can see who created this document, if you have Adobe Acrobat by going to "File" and then "Properties". According to this, a fellow named Mike Vernon created it. I tried a search for Michael Vernon or Mike Vernon on the SEC's website: https://adviserinfo.sec.gov but sadly to no avail. So, let me get this straight. This guy has never been registered with FINRA or the SEC, yet he is allowed to create this document? How would he know all the regulations pertaining to performance without being registered? I'm just curious.

Did I mention that TCA Fund Management Group was also registered in the United Kingdom and other countries? Supposedly, they are registered in the Cayman Islands, the United Kingdom, the Netherlands, Belgium and finally, the United States. Who knows if any of this is true? I am sure all of their investors know and did their due diligence before investing. I know. I know. I am being sarcastic.

I don't know how long this You Tube video is going to survive before the attorneys catch it, but if the link still works, I want you to watch this and tell me what in the hell TCA Fund Management Group does. I have a hope and a prayer that this young lady is one of the whistleblowers helping the SEC. https://www.youtube.com/watch?v=QCbWFC9rGu4

Don't forget that I am a compliance sleuth. I found this when I DuckDuckGo'd her name after watching the You Tube Video above. If you will notice that first thing in this DuckDuckGo search lists her, Tara Antal, as Chief Compliance Officer and Chief Administrative Officer. https://duckduckgo.com/?q=tara+antal+tca+fund+management+group&t=ffnt&ia=web Who knows what in the hell a Chief Administrative Officer does, but I do know what a Chief Compliance Officer does. Funny thing is that I could not find her at the Adviser Check web site either. Rather curious, don't you agree?

When you click on that link to her LinkedIn account, it does not exist any more. So, this is the scary part and why I hope and pray that she is one of the whistleblowers. I am in no way being prejudicial against young women, but I have a hard time believing that this young lady has the requisite skill set, experience and knowledge to be a Chief Compliance Officer for a hedge fund. Watch the video again and you will see that she struggled to explain what the firm does. At the time of this video she was a Senior Financial Analyst, but somehow she made the jump from that position in 2014 to a Chief Compliance Officer of a firm with supposedly $489,835,822 in regulatory assets under management as of January 31, 2019. She was CCO of almost a half a billion dollar RIA firm? Hopefully, she has "lawyer-ed up", because she is in a heap of trouble as the Chief Compliance Officer for this firm, unless she is one of the whistleblowers, then the SEC might work a deal with her. Let's pray for her.

This is a big lesson for young people. Do not accept a fancy title like Chief Compliance Officer unless you have a ton of experience, lots of control and know everything about a firm and its investment offerings. Otherwise, you could end up like this young lady in a big legal mess. Maybe she already quit this firm and called the SEC before they dropped the hammer. Let's hope so.

Another interesting fact about this firm is their Form ADV 2A given to clients. They do not have one posted for 2020 as they are required to do.  However, never fear, you compliance sleuth is on the case. I found one for 2019. https://adviserinfo.sec.gov/firm/summary/169163

Funny thing is that there are a bunch of glaring problems with this document. One obvious one is where is the money held? Their answer is "banks or other qualified custodians to hold all assets of these Clients." WTF? Are you freaking kidding me? They do not even tell people where their money is? I'll say it again. WTF?

This is proof positive that the SEC did not look at this document when it was filed. If they did, they would have instituted an immediate examination. The SEC's answer will be that they are understaffed and need more funding. There is this thing called reading Form ADV 2A filings. After all, once you submit this Form ADV 2A, then someone at the SEC is notified electronically. I would venture to say nobody read it when it was filed. Just a guess on my part. Don't get me wrong. We need the SEC, but they need someone like me helping them as an outside consultant on RIA exams and inspections.

Let me give you another glaring mistake. This firm was subject to independent auditors. In this 2019 Form ADV 2A, they said that they "expect to distribute audited financial statements to all investors ...within 120 days of the end of the fiscal year." Expect to? Expect to? WTF?

Another thing is the way they described the guy who owns the firm in this 2019 Form ADV 2A. "The Firm is controlled and majority owned by Robert Press via one or more affiliated entities." Huh? One or more affiliated entities? WTF? What affiliated entities? What are the names of these "affiliated entities" and are any of these "affiliated entities" regulated in any way? Have they been subject to any lawsuits? Sadly, the way this is worded, an investor has no freaking idea. Apparently, they do not have a problem writing a check for $500,000 though.

I wonder. Perhaps this may offer some insight into why there is no 2020 Form ADV 2A and further answer the question as to why they are currently under investigation by the SEC. Their independent financial auditor maybe did not sign off on it.

Oh well. Another cautionary tale for a lot of people.

Question the Data

This Wuhan Coronavirus or Covid-19 has numbers that reminds me of the video of the BP oil leaking into the ocean that was on television everyday. As people kept seeing the BP oil leak into the ocean, people got more and more fearful of what was going to happen to the Gulf Coast. There was legislation passed to compensate businesses for their losses due to the BP oil leak and the damage from it. What ended up happening? It became a money grab by a bunch of crooks claiming that they lost their businesses due to the BP oil spill and come to find out, a lot of these people were just out and out stealing money. Do you even remember the effect of the BP oil spill? The truth is that it did not have the effect that the television news and the doomsayers said it would. A lesson for today no less.

So, here we are with this Coronavirus. The massive legislation has already passed and supposedly will be passed out to worthy businesses and people. However, I am sure that there will be all kinds of abuse by unscrupulous bad actors. There always is in situations like this. I suspect that the truth will turn out the same as the BP oil spill. It will not be as bad as the modelers, the health experts and the doomsayers on television tells us everyday.

Let me point out something to think critically about. According to Wikipedia, the U.S. death rate in 2018 was 8.7%. Also, according to the Johns Hopkins Coronavirus map (equivalent of yesterday's BP oil spill video) that changes by the minute, the U.S. has a death rate of 2.55% as of this minute. (4/3/20: 1:26 pm) However, when you look at the death rate for Italy, Spain and other countries hard hit by this Coronavirus, you will see a death rate around 10 - 11%. We keep hearing from the medical experts that most of the people dying in all countries have "underlying health conditions." So, this begs the question..."What percentage of the people dying are 100% related to Coronavirus and only Coronavirus?" These medical experts keep repeating the phrase "underlying health conditions." Therefore, an easy conclusion would be that of the 2.55% U.S. death rate, then a large portion of those are related to "underlying health conditions." Further critical thinking would say that a much smaller percentage is actually 100% related to Coronavirus, probably 10% - 20% of the 2.55% figure. An inescapable conclusion then is that the death rate in the U.S. to Coronavirus is primarily related to those people with underlying health conditions (80% - 90%). If we were to see the age breakdown instead of just one number (all deaths), we would see more deaths at older ages. Some of these numbers have leaked out of Italy, but for some reason are not being shared here in the U.S.

This all brings me back to that 8.7% U.S. death rate. If underlying health conditions are a major contributor to that 2.55% death rate, then this means that it is probably safe to say that our U.S. death rate will climb to around that same Italy and other countries. The death rate in the U.S. would be 2.55% plus 8.7% on the low side, or 11.22%. Assuming the modelers worst case scenario on the high side would be adding the 8.7% and the 10 - 11% (Italy figure) for a total of 18.7 - 19.7% U.S. death rate. However, would this really be accurate? I for one do not think so. Let me explain why.

You have to assume that these people with underlying health conditions are actually part of that normal 8.7% death rate, but things got sped up a little due to the Coronavirus. These modelers (garbage in and garbage out) are predicting doom and gloom to cover their rear ends. They will always err on the side of worst case scenario, then when it doesn't materialize, they will all breathe a sigh of relief. My financial plans are worthless if the data going into them is wrong. The same is true for these modelers and their protections. It is garbage in, garbage out.

This all begs a host of questions.

• Why are we shutting down our economy based on these health experts, if the reality is that the majority of the deaths are people with underlying health conditions? 
• Further, if people with underlying health conditions are most of the 2.55% figure, then even if we assume a worst case scenario figure of 10 - 11% (Italy like) of people who get the disease, then how much higher will this really be above our normal 8.7% U.S. death rate? I believe these figures bleed over each other and will never get to 18.7 - 19.7% death rate of people who contract the Coronavirus. That's not going to happen, because of the efforts we have already taken.
• Why are we relying on these behind-the-scenes "modelers" in the first place? We need to question everything and be skeptical of data models.
• If the actual death rate of Coronavirus is a small percentage of 2.55%, then this is easily measurable. The risk for healthy people is a range of 0.255 - .051% (10 - 20% of the 2.55% figure). This is the quantifiable risk - 0.255% - 0.51% to healthy people. It is more dangerous to drive your car than this figure.
• Even assuming the worst case scenario, if the U.S. death rate jumped to 10% (Italy figure), then that would still mean that the majority of deaths would still be attributed to those "underlying health conditions." Therefore,  assuming 10 - 20% of that 10% death rate would mean that the effect of Coronavirus killing people would be 1 - 2%. Eureka! We are killing the economy for a 1 - 2% risk to healthy people. Seriously? This is stupid.

Here is the real problem. The hospitals are woefully unprepared. We are buying time during the month of April to ramp up the health care system. I think the President is going to side with the American people and get us back to work in May. Let's pray for a good outcome better than the one we have right now. The actual death rate numbers do not and will not justify killing the economy for a 1 - 2% risk of healthy people. As Americans, we take risks all the time. We can afford this risk. Let people with underlying health conditions adjust their lives to the risk, but put the rest of the healthy people back to work. Sooner, rather than later.

It Is Only Temporary - If You Cooperate

Personally, I do not like to hear people talk about depression and suicide in tough times. Although it may seem overwhelming to some people right now, it is only temporary. This is no time to jump off a cliff, reach for a bottle or grab a handful of pills. This is only temporary...if you cooperate.

People are dying everyday, but people are dying everyday anyway from other things like cancer, flu, car wrecks, and job site accidents. Yes, this invisible enemy can be scary, but not if you are smart and make good decisions. Nobody likes to self-quarantine, but right now and for the next month, this is the best thing we can do. After all, it does not take a smart person to figure out, if you stay away from other people, then you will not get infected and more importantly you will not infect other people. This means that the virus has no place to go and when warmer temperatures arrive, then the virus will go away for most locations in America. Pray for global warming and 100 degree temperatures!

The problem is going to be people moving around from hot spot areas. People from cold climates traveling to the United States will be an issue. Let's trust our health officials to recommend that this kind of travel be stopped. They are working overtime and deserve a lot of respect for the sacrifices that they are making.


Of course, some states like Florida are instituting tough measures for travelers from hot spots like New York. I don't mean to pick on New York, but to explain my point, I think it is important.  What good does it do for Florida to have tough measures in place when people from hot spots are traveling to Florida instead of self-quarantining? All these "travelers" are doing is delaying the end of this. Think about it. If all New Yorker's stayed home and didn't get in their cars and drive to Florida or other states, then there would be a flattened curve in a shorter amount of time. However, if they travel to other states and infect others, then this drags it all out for a longer period. You do not have to be a PhD to figure this out.

Self-quarantine and quit traveling around. This is where being smart comes in. Are you going to be smart about this? Or, are you going to be a narcissistic and travel around the country, because you feel like it?

Regulations, Regulations, Regulations!

Why is it that people in government think the way to solve a problem committed by a small subset of people is to make new rules that apply to everybody?

A case in point: Regulation Best Interest and Form ADV 3 - CRS. (See June 5, 2019 Final Rules)
https://www.sec.gov/rules/final/finalarchive/finalarchive2019.shtml

This proposed rule by the SEC applies to all broker-dealers and investment advisers. The problem is that this rule favors broker-dealers over investment advisers. There are a couple of lawsuits filed against this proposed rule and we will see how this all pans out. However, herein lies the problem. Broker-dealer representatives can sell Variable Annuities that pay 6% (or more) commissions to their clients and still comply with RegBI. Well, you might say... "What is the big deal as long as it is disclosed to clients in writing?" More disclosures? We really need more disclosures? Let me get this straight. As long as your broker puts it in writing that he is charging you 6% commissions and you do not even have to sign Form CRS, then this makes it okay? Give me a break.

Here is another problem. Think about this from the best interest of the client for a minute. This broker sells you a 6% commission Variable Annuity with a 10 year surrender charge and has given you the proper Form CRS disclosure. What this broker did not tell you was that you can get a multitude of Variable Annuities without any commissions and no surrender charges. Guess what? He didn't put that in his RegBI disclosure either.

Do you see the problem here? How can you ever sell a client a Variable Annuity that pays 6% commission with a 10 year surrender charge knowing full well and trust me, the broker knows full well, that there are Variable Annuities without commissions and no surrender charges? How can this ever be in a client's best interest? It cannot. Pure and simple.

In my opinion, the issue is and always has been to protect broker-dealers over investment advisers like my firm. https://www.marianfs.com.

How do I plan to solve this issue at my firm? Give the Form CRS, plus a side-by-side comparison of the fees currently being paid by a client against the fees if they move to my firm. All you people who still do business with broker-dealers, really need to come see me, or reach out to me. Seriously. This one form will open your eyes to how your broker is not doing things in your best interests and quite frankly, never will. This form is copyrighted by the way, so don't get any ideas you brokers.