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From: John Anderson
Dear industry regulators, Since my last communication of concerns to you did not yield any visible fruits, as a consumer I feel compelled and find it necessary for the public good, and in particular the individual consumer of investment services, to once again use this avenue to comment on pending proposals before the SEC. Proposed Investor Protection Rules Amendment File Number S7-25-06 First and foremost on the subject; Equal Choice, Equal Access, Equal Opportunity Whereas Rule 501 {a} of Regulation D defines the term "Accredited Investor" to include a natural person whose net worth exceeds $1,000,000 and annual individual income exceeds $200,000 or joint income of $ 300,000, any attempt to increase this requirement to a larger net worth amount can only be discriminatory if disguised as an investor protection measure or initiative. From experience, and in practice there is nothing to suggest or indicate that investment wisdom, education, knowledge and expertise in making wise investment choices is privy to the "rich and wealthy" or "corporations" and not the "average citizen" with low net worth. This myth or notion is archaic and utterly discriminatory and intended to keep widening the gap between the extremely wealthy and average citizen for which purpose and reason it sadly originated historically. It seems there is an attempt to revive the intent. Investor Protection Against Investment Risk : largely posed by the institutions themselves Instead the SEC rightly ought to pursue more stringent "financial institution" "investment broker" and "adviser" licencing, accreditation, auditing and control to prevent fraudulent practices and consumer misinformation and exploitation and in particular to protect the "natural person" or "individual". It is done successfully in other international jurisdictions. Why not the USA.?? Furthermore the SEC needs to deal seriously and directly without bias the rampant epidemic of "Chapter 11 Bankruptcy protection Abuse" by brokerages, financial service providers which has become a clear loophole in the industry constantly used by major brokerages, and many others in the industry to orchestrate financial disasters knowingly and with intent to then seek and be granted "Chapter 11 Bankruptcy protection". In very recent history we have seen so many scenarios where investors accounts are wiped out as a result. These financial institutions or corporations can afford to retain the best law firms for legal representation and the courts always let them get away with the loot when they intentionally mis-appropriate customer "Margin Deposit Account" funds under the guise of employee or Executive, CEO fraud. In this respect the SEC has failed to protect the investor and NOT because the average investor whose net worth is limited isn't smart or intelligent enough to make good technical investment decisions. This is where the SEC needs to act and stop dwelling on investment risk based on low individual "net worth" as a scapegoat which attempts to blame the small investor with the attitude " your net worth is small.... you should not invest in securities, ...and so on.. Technology and education does not support this notion anymore. Nobody should lose their investment no matter how small, simply because the broker or agent is committing fraud. The investor should only lose financially because they have made a bad technical investment decision, for which the investor is then squarely responsible, and cannot blame anyone but themselves. Naturally the investor or trader then has to humbly accept the resulting financial loss and seek more education. Urgent Need for Realistic Consumer Protections I might also add that from my experience, institutional and individual investment broker / brokerage and advisory practices seem to be the main risk to investors and very often it does not matter how well-educated and informed an investor may be, they can become a victim to these practices. The consumer of these services needs to be seriously and directly protected by the law. I have been a victim of a major brokerage who just got out of Chapter 11 Bankruptcy Protection and so have more than 10,000 other customers. In summary, the court allowed the brokerage to manipulate technical interpretation of language and to use a minor and insignificant caption of language in the customer agreement to change what is clearly and primarily a "Customer status" relationship to imply "Creditor status" relationship and hence disallow customer rights clearly obvious as the main relationship between the "Brokerage" and the Investor / trader. The Judge in this case allowed the ambiguous interpretation and gave the upper hand to the brokerage granting them the right to skip Chapter 7 Bankruptcy Regulations with regards to customer accounts settlement and restoration provisions, The consumers of the investment services was left robbed of their "margin deposit" account balances. Customer accounts in this case should have been fully and immediately restored before any further considerations in the Bankruptcy as the records were clear, accounts live, and the funds were available. This has not happened, and the firm in question has exited Chapter 11 bankruptcy and will continue to operate as another entity. This is very damaging to the international image and reputation of the US securities industry as a whole, as the court has allowed the outright theft of customer funds. Creative Enforcement Authority and The Consumer Protection Act On a final note: It would be a good idea for the SEC to explore and exploit additional and other alternative legal enforcement tools applicable at the primary level before bankruptcy protection can be granted and can occur. Certain provisions under the "Consumer Protection Act" may be a potential tool to empower the SEC and some of it's protective instruments such as the CFTC, SIPC, to better provide realistic investor protections, and in particular with respect to protecting the "natural person's" or individual's investments as a consumer of investment services, whatever the financial instrument in question may be. These protection tools are available and strictly enforced in other international jurisdictions, why not in the USA?? The status quo knowingly attempts to rely largely on the industry to police itself and protect the investor. Although some protection mechanisms exist, the Industry and Courts unfortunately tend to give big business; i.e brokerages, major banks and financial institutions the upper hand and favour in bankruptcy proceedings, thereby abandoning and failing to protect the front line consumer of investment services, or the individual in the "natural person". Self-directed Individual Retirement Pension Needs and Goals Protection The need to protect the "individual" or "natural person's investments has never been greater given the reality of personal retirement pension investment needs which for the larger population are increasingly falling into the "individual's hands" and "self-direction", which is further away from the old-fashioned institutional realm of employer/employee pension schemes and responsibility. I am inclined to believe that this was among many reasons why Mr. Bernanke emphasized the need for public investment education although education alone is clearly not enough and will not protect the consumer of investment services without tough Government legislation and enforcement to that end or purpose. Sincerely, John Anderson |