READERS OF MY LAST BOOK AVOIDED FINANCIAL INDIGESTION

       

      Those of you smart enough to have bought copies of my last book, “The Adventures Of A Free Lunch Junkie”, certainly got their money’s worth ($10.99 on Amazon and $4.99 on E-Readers) especially if they paid attention to the chapters I wrote describing three of the free lunch seminars I attended. This book is likely to become a best seller after the recent article in the New York Times describing the penalties meted out to the “King” of the free lunch circuit, David Lerner. Read this excerpt from the New York Times:

          The Financial Industry Regulatory Authority (FINRA) said on Monday it had ordered David Lerner Associates to pay about $12 million to customers that bought into a $2 billion real estate investment trust and to those who were charged excessive markups.

FINRA, the retail brokerage industry’s watchdog, also said it had fined the firm, based in Syosset, N.Y., more than $2.3 million for charging unfair prices on municipal bonds and collateralized mortgage obligations. In addition, the firm’s founder and chief executive, David Lerner, 76, was fined $250,000 and suspended for one year from the securities industry, followed by a two-year suspension from acting as a principal, FINRA said.David Lerner boasted in his newspaper advertisements about the huge number of attendees at his free lunch seminars. I enjoyed going to several of them (and eating the free food) and listening to David and his assistants lecture about the firm’s investment vehicles (REIT’s). I wrote extensively about my experiences in my book. David seemed to enjoy speaking at these seminars as much as his audience appeared to get pleasure from his lectures. I described him as an “Energizer Bunny” who bounded excitedly around the room as he spoke.

St. Augustine is blessed with being the location of the “Fountain of Youth.” I don’t know what there is in the water in Boca Raton (where Judy and I reside in our Golden Years) but this town certainly seems to have more than its share of individuals who have had scrapes with various regulatory and law enforcement authorities, including David Lerner. It’s only fair to add that Mr. Lerner and his firm neither admitted nor denied the charges, but consented to the entry of FINRA’s findings as part of a settlement and paid the $14 million.

 The money comes out of David’s petty cash box. The firm raked in a 10 % fee on each of the $7 billion it has raised. That ain’t chopped liver.

I thought I’d add the aura of professionalism to Earl’s Pearls by providing a link a video so you can see David in action giving a lecture on "Enthusiam" at Stony Brook College. Just click :http://www.youtube.com/watch?v=gWjfT-skxgs

And now onto another free lunch seminar I attended in a private dining room at Ruth’s Chris in Boca given by a broker who was hawking “Life Settlements”. I had no idea what a Life Settlement was but I knew how juicy and delicious their filet mignon smothered in butter was so I     gladly accepted as soon as I received an invitation.

What was so memorable about this free meal was (1) I sat next to a couple I know quite well who got up and gave a ringing endorsement of the sponsor of the luncheon and (2) learning how much money I could make by buying a Life Settlement (an interest in a group of life insurance policies that had been sold by the owners to Life Partners Holdings, Inc, a NASDAQ-traded company). In other words an investor hopes that all the people on whose lives he had an interest died quickly.

Something sounded fishy about the whole deal, even though I was in a steak restaurant. And after my book came out the SEC evidently came to the same conclusion. The Commissioners rode in on a white charger and filed charges against Life Partners Holdings Inc. and three of the company’s senior executives over their alleged involvement in a life settlement scam. I’m not making the claim that there is any connection between my book and the SEC’s actions. I’ve always been modest.

To sum up the SEC’s charges the regulators alleged:

1) that the person making the estimates of the life expectancy of the individuals in the pool of policies, and on which the price the investor paid and his projected return was based was made by a medical doctor who lacked actuarial training and had no previous experience in this work. Somehow he materially underestimated the life expectancy and the SEC said this was a “NO, NO.” (Well at least the Company didn’t use a Veterinarian to make the estimates of life expectancy.)

2) improper accounting and disclosure violations

         3) two executives were involved with insider trading. The SEC claims that the two men improperly sold about $300,000 and $11.5 million of the company’s shares.

 Perhaps the SEC regulators attended one of these free lunches and got a tummy ache.

And now for the third and last free lunch seminar I wrote about and which caught the attention of regulatory authorities in various states. I was particularly peeved at this company (Stores Online, a subsidiary of a public company) because all they served up for lunch was a lousy cold deli turkey on a croissant (with all the fanfare at the seminar I expected at least a 2 pound lobster). The only beverage was a pitcher of water. In addition they offered a free MP3 Player that never came. I was peeved primarily because of all the comments I read on a website which contained the almost daily complaints of people who had invested many thousands of dollars only to find the claims of support and success the high-powered speaker at the meal had spouted go up in smoke. It was sickening to read the stories about people who had put their life savings into this deal and who had nothing to show for their investment but turkey on a croissant.

Thankfully, the company closed down the subsidiary engaged in these activities.

To summarize this posting I think you’ll agree that the proof of the pudding is in the eating and that anyone who bought my book was saved a lot of financial indigestion.