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Strategic alliance between Profile Finance S.A. and the law firm Cibils & Castro Cranwell regarding «asset recovery» matters. Dear Readers of the «Profiler», In past months we received many queries from clients directly affected by Madoff’s massive fraud. |
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| As we could see during those months, said inquiries came from beyond European borders and particularly, many of them came from Latin American countries in which we have a large quantity of clients That was the reason why we decided to join the law firm «Cibils & Castro Cranwell » in order to be able to channel all cases so important for the sake of our business. Both firms share many objectives, among which the most outstanding is the importance that we tribute to our clients, not providing them with general and massive solutions but dealing case by case, studying the complexity and the context of each situation. In my last visit to Buenos Aires, several communication media got knowledge of this strategic alliance and wanted to know our stance (see links at the end of the reports) at this respect. |
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| Here below we enclose an article written jointly with Mr. Sebastián Castro Cranwell in which we address how to avoid further frauds of this kind. Good reading, till our next Profiler. Robert Bindon Managing Director. Profile Finance S.A |
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| How to avoid beign trapped into another fraud like madoff’s Addressing how to avoid falling into future frauds similar to Madoff case implies to study in depth the several elements that must be taken into account by all those participating, directly or indirectly, in the financial industry, like us. We are facing a process that, a part from entailing a mea culpa carries the need of conducting of a self-conscious test by all who is involved in the sector: banks, financial advisors, clients, analysts, supervising authorities, etc. In these past days, and as we contacted clients who came to us for advice, we could see that, in very similar situations and referring to the same products, each client has been told and informed something different by their financial advisors, no matter the situations and products were alike. Much of the wrong advice that has been provided has come from the deepest ignorance of commercial advisors, who in theory, were investing in products according to the needs of their clients. And here we find the first element to be considered: account executives should « invest / sell » an X quantity of certain products in the client’s account because they receive those instructions from the entity at where they work, and also, because they should accomplish their annual sales target. The conclusion is easy to draw: the client is pushed into the background. What matters in these cases is to sell in order to fulfil the commercial targets set out by the bank, moving the interests of the client to a second place. Thus, here emerges our first element of study, i.e. the conflict of interests, which lies in giving priority to the accomplishment of the targets of the structuring banks instead of paying attention in the first place to the interests of the client. However, we cannot either put so much blame on the financial institutions taking part in the asset location process. The client also possesses, in some cases, a degree of responsibility. What we are saying may seem contradictory to our previous statements, but it is not. The ABC of Finance shows that the profit is directly bound to the risk. The formula “large profits with extremely low risk” is not viable and every investor knows perfectly well this maxim. Structures like Madoff’s were sold as a “product comparable to fixed term deposits” and regarded as “totally safe” but, nonetheless, these products doubled the profits of fixed term deposit. ¿Where was the “magic” or the “secret” of such doubling strategy? There were any; they simply did not exist. Many times, the client –from the layman to the expert – decided to “double the bet”, not respecting the basic rule in matters of asset allocation, i.e. portfolio diversification. The product is so good that the client goes to play “winner”, as if it were a summer night game. Here appears the second element of study to be considered in order to avoid cases like Madoff’s: The client should neither hope nor try to obtain a magic outcome without also bearing associated risks. The third element to be considered is the lack of supervision and tracking carried out by Regulatory Market Authorities. Obviously, Madoff’s case, and its “younger brother” Stanford – the same as the huge fraud performed by Société Générale trader Jerome Kerviel–, showed both internal and external absence of control. The SEC overlooked the report submitted by Harry Markopolos, a financial analyst from Massachusetts who, in 2000, reported Madoff’s fraud (calculated to amount 7 billon dollars at that time). Also, when problems like these arise, banks protect themselves stating that this or that product were “authorised”, but not “recommended” for sale. A subtlety like that may look evident, but in practice it is not. Commercial executives in charge of the operations know in depth about the nature and the characteristics of the products they sell. The entities where they work are preoccupied about the fact that they have received adequate training and that they possess enough knowledge to understand the products, in the first place, and then if they are able to explain all technical aspects and inherent risks to clients. We could summarize the third element to be taken into account in order to avoid cases like Madoff’s, as follows: the States should ensure due internal and external control throughout the whole process of generation, sale and distribution of financial products. On the other hand, adequate training and efficiency of the seller of said products should be also guaranteed. I always remember the image conveyed by one of our friends, a commercial airline pilot once we were talking about accidents; he said: “Every time that an accident takes place, you can think about the holes you find in a gruyere cheese: many layers are needed for those holes to come into existence ”. The same can be stated here, we have arrived to this “Madoffic” situation by the conjunction of several elements that ended building up the whole problematic issue. It is not the occurrence of a single fact or circumstance but the conjunction of many. We only mentioned three here, but this list is no “numerus clausus”. If we expect to learn the teaching and to be able to trust the financial system and international banks again, everybody who took part in the financial industry must make a self-conscious examination and draw conclusions about wise and wrong moves. In this way, we could finally learn the lesson and, in some way, we could avoid situations like these to repeat in the future. Dr. Robert Bindon, Managing Director of Profile Finance Dr. Sebastian Castro Cranwell, partner at Cibils & Castro Cranwell Echos in the press Dear readers, here you will find enclosed some press articles as well as some links wich picked-up the information of our sgtretegic alliance regarding the "asset recovery" matters you have jsut red about. Please let us know if we can be of any help for you. See in the next Profiler. Robert Bindon.
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