UNDERSTANDING HEDGE FUNDS

 

EMPLOYMENT DISPUTE RESOURCES

 

AVOIDING THE PITFALLS OF IRS SECTION 72(t)

 

UNDERSTANDING SECURITIZED TRUSTS

 

SETTLING A CASE IN EXCESS OF THE $15,000 REPORTABLE LIMIT

 

NASAA SUITABILITY GUIDELINES – REAL ESTATE PROGRAMS

(Adopted 11-20-86 – Effective 1-1-87)

 

 

HEDGE FUNDS

 

Hedge funds have become one of the hottest investment vehicles in recent years, growing to more than $1.44 trillion in assets under management, according to Hedge Fund Research.  Not only have institutional investors embraced these popular alternative investments, but individual investors also have been jumping into hedge fund-of-fund products and hedge-like mutual funds.

 

     Hedge funds have significant stakes in 38% of the world’s public companies, up from 24% two years ago, according to analysis prepared for Financial News in November 2000 by UK fund manager Gartmore.  Hedge funds hold stakes of at least 10% (enough to call a general meeting in many countries) in a fifth of public companies, twice as many as in 2004.  Companies in which hedge funds have significant holdings include  the $12 billion NYSE, where eight funds hold 12%; Mastercard, the $11 billion  financial services group in which 19 own 26%;  NTL, the UK cable operator with a $9 billion US listing, where 28 funds control 38%. and the $7 billion Polo Ralph Lauren clothing group, in which 10 funds account for 16%.  Last year, Blockbuster, a $1 billion US video and DVD rental company in which hedge funds own 40% of the equity, was forced to take on three hedge fund-nominated directors including Carl Icahn, whose fund owned 10% of it.

 

     For some investors, hedge funds might seem like unregulated, high risk ventures where you can lose all your money.  Others might see them as actively managed funds, which provide high returns regardless of market conditions.  But most would probably agree that hedge funds are not well understood by the investing public.

 

     Hedge funds are private investment pools, so the lack of public awareness is largely because hedge funds are restricted by law from advertising.  Most investors hear about hedge funds through word of mouth, investment advisors, or stock brokers.  If an investor is interested in learning about a particular hedge fund opportunity, they must actively request information from the fund.  With a lack of public presence, many hedge fund myths and misconceptions have persisted, especially in the media.

 

     Hedge funds are an alternative investment vehicle for high net worth individuals and institutions.  Hedge funds are much different than the traditional mutual fund.  To ‘hedge’ means to avoid or lessen investment risk by offsetting one investment by another investment.  The most basic type of hedging is to hold both long (betting price will rise) and short (betting price will fall) positions at the same time in order to reduce risk.  This type of strategy was first developed by sociologist Alfred W. Jones in 1949.

 

     A good way to understand this concept is to remember what happened after the market bubble burst in 2000.  If an investor had maintained 100% long positions during the market decline from 2000 – 2003, they would have suffered big losses.  Suppose instead that an investor had held a mixture of long and short positions during the decline and let’s assume further that all asset prices in this portfolio fell, during this period.  The losses from the long positions would be offset against the profits from the short positions, thereby reducing market risk and limiting losses.  While this is a simplistic, theoretical model, it does illustrate the basis on which many hedge funds control losses with long/short hedging strategies.

 

     Today, ‘hedge fund’ applies less to the hedging process and more to how hedge funds are structured and managed for the various types of strategies they use.  Hedge funds are a private investment pool formed under a limited partnership agreement.  The investors are ‘limited’ partners; they do not participate in the fund’s operations, and their liability is limited to the amount of capital invested.  The fund manager is the ‘general’ partner, who is responsible for operating the fund and is liable for any potential misconduct under Federal Securities Laws.

 

     Unlike mutual funds, not everyone is eligible to invest in a hedge fund.  For an individual to be an ‘accredited investor’, they must have a minimum of one million dollars of tangible net worth.  Institutions (pension funds, endowments, investment banks) can also invest in hedge funds as ‘qualified purchasers’ if they have at least five million dollars in assets.  Hedge funds have a minimum investment amount which is usually $250,000.

 

     Hedge funds are loosely regulated by the Securities and Exchange Commission.  In contrast, mutual funds are highly regulated; but regulation comes at a price.  Mutual funds are largely prohibited from using leverage and shorting.  During the 2000 – 2003 market decline, they either held long positions or partially went to cash.  In contrast, hedge funds were able to short during the market decline.  Hedge funds are allowed a wide range of investment options, such as shorting, leverage, arbitrage and derivatives, which allow them to take advantage of all market conditions and produce higher returns.

 

     Hedge funds also have an incentive to outperform traditional investments.  As part of their compensation, hedge funds charge a performance fee, commonly 20% of profits.  The median fee structure, according to the TASS database (which collects data on hedge fund returns), is a 1.5% management fee plus a 20% incentive fee (where managers are paid 20% of all returns that are above their target benchmark). Over the last 10 years, this came out to an average fee of about 3.8%, which is about 2.3% greater than the charge on a typical, actively managed mutual fund.   In addition, fund managers usually invest their own money in their hedge fund.  Hedge funds seek absolute returns and pursue profits under all market conditions, including bear markets.  In contrast, mutual fund performance is compared to the general stock market and is highly dependent on a bull market to create positive returns.  The mutual fund manager’s compensation is based on assets under management rather than their performance.

 

     One of the biggest misconceptions about hedge funds is that they must take excessive risks in order to gain higher returns.  The best hedge funds are specialists at minimizing risk and make it an integral part of their investment plan.  Conscientious risk management serves to limit losses and promotes more consistent, generally higher risk-adjusted returns.  Hedge funds are also more actively managed than mutual funds and use more advanced strategies such as shorting and leverage which require greater skill.  Active management also places greater emphasis on making the right investment at the right time.  It’s no wonder hedge funds attract some of the brightest minds on Wall Street.

 

     Most hedge funds are highly specialized in the type of investment strategy they use.  There are over a dozen different types of hedge fund strategies, and each fund is based on a particular strategy and the financial instruments traded (stocks, options or futures, etc.).  For instance, one type of stock fund seeks to provide high returns by investing in growth stocks (Aggressive Growth Fund) while another looks to generate consistent income with dividend-paying stocks (Income Fund).  There are also ‘funds of hedge funds’ which are funds that invest a portion of their capital in each of several different hedge funds.  It is important for an investor to understand the type of hedge fund which best fits their portfolio because funds vary in risk and return.

 

     Investors should also research the fund manager’s background and experience as well as the hedge fund’s track record, although past performance does not imply equivalent performance in the future.  Many hedge funds now list their returns at websites.  Hedge funds will provide accredited investors with documents that cover key information about the fund including the structure, rules and investment objectives.  One can also use a research consultant, who specializes in hedge fund analysis.  For general information about hedge funds, a good place to start is the not-for-profit Hedge Fund Association (www.thehfa.com).

 

     From a tax standpoint, many hedge funds claim “trader” tax status, which can also be used by some individual traders, when their strategy involves frequent turnover of stocks, commodities or other investments.  Hedge funds that use a buy-and-hold strategy are deemed “investor” funds and aren’t eligible.  Each investor in a “trader” hedge fund may deduct a proportionate share of fund expenses, including management fees but excluding interest expense, as a business expense under Section 162 of the tax code.  Management fees are typically 1% to 2% of assets.  A performance fee, which usually amounts to 20% of profit, is fully deductible in some cases.  But individuals in “investor” hedge funds must treat such expenses as investment expenses.  They are deductible only to the extent that the investor’s share, combined with other miscellaneous itemized deductions. exceed 2% of the taxpayer’s adjusted gross income.  For the average hedge-fund investor, the difference between “trader” and “investor” status can be thousands of dollars in tax savings.

 

     Hedge funds are not for everyone, and they are not intended to replace traditional investments.  Hedge funds can serve an important and valuable role in a well-diversified portfolio, especially since hedge funds reduce market risk by achieving positive returns during market declines.  The more an investor understands hedge funds and their operation, the more they can set aside myths and misconceptions and capitalize on the advantages that hedge funds can offer.

 

     Despite the growing mainstream use of hedge funds, the industry is largely unregulated.  That’s because hedge funds are usually either limited partnerships or offshore corporations.  This gives managers in this arena tremendous flexibility, but it makes it difficult to accurately measure performance.  Since hedge funds aren’t required to report their returns, most of the results reported to data collectors are voluntary.  However, we  can analyze the after-fee performance of a universe of about 3,000 hedge funds in the TASS database form January 1995 through March 2004.  Bloomberg reported in September that 106 hedge funds had withdrawn their registrations with federal regulators since an appeals court ruled in June that the SEC did not have the authority to requires such registrations.  On an equally weighted basis, it provided an average annual return  of 16.64% after all fees, with a standard deviation of 6.90%.  However, we must adjust for two biases that inflate these figures:

 

     1.  When a hedge fund fails, the fund (along with its poor performance history) is frequently removed from the index and data re-set.  This leaves an artificially inflated index composed solely of surviving funds that have all had some level of success.  The Wall Street Journal reported that 850 hedge funds failed last year.

 

     2.  Then, because hedge funds must report returns in order to join an index, they frequently tend to join only after a period of solid performance

 

     If we take these two bias factors into consideration with the TASS numbers, the annual average returns declined to nearly 9.1%, with a standard deviation of 7.89%!  In looking closer at the data, the larger hedge funds tended to produce greater returns than smaller ones.  For example, the largest 1% of hedge funds in the TASS universe had average annual returns of 12.94% (adjusted for the bias factors) and the largest 5% of hedge funds produced returns of 10.53%.  The smallest 50% of the universe, however, posted returns of 8.67%.

 

     Hedge funds returned an average of 13% this year, according to the Credit Suisse/Tremont Hedge Fund Index.  That  compares with returns ranging from 31.2% in 1999 to minus 1.45% in 2002.  In 2004 and 2005, Hedge Fund Research’s composite index returned slightly over 9% each year.  The best hedge fund performers were emerging markets, up 17.2%, and event-driven funds, those that bet on mergers and restructurings, up 13.9%.  Meanwhile, in a year of double-digit stock market advances, hedge funds betting on falling stock prices, or “short” funds, fell 7.2%.

 

     Still, hedge funds aren’t for everyone.  They carry significant risk, high minimum investments, and liquidity restrictions and they’re usually not very tax-efficient.  They do however provide good diversification exposure for qualified investors to a portfolio of traditional investments.  By way of contrast, the S&P 500 gained 15.8% for the year and the MSCI World Index was up 23.5%.

 

     The SEC is intent on regulating hedge funds.  This is because since 2001 the SEC has brought 90 enforcement actions against them.  These have involved misdeeds such as misappropriating fund assets, engaging in insider trading, misrepresenting portfolio performance, falsifying experience and track record credentials, market manipulation and illegal short selling.  The growth of hedge funds is also a factor.  There are estimated to be 8,800 hedge funds controlling approximately $1.44 trillion in assets – almost 3,000% growth in the last 16 years.  Last year, 2000 new funds opened.  Further, the total value of equities in hedge funds worldwide is estimated, as of November 2000, to be $28 trillion, according to data provider MSCI Barra.  The number of hedge funds has doubled over the past five years.  Although hedge funds represent just 5% of all U.S. assets under management, it has been estimated that they account for 30% of all U.S. equity trading volume!

 

     In a move that it says is designed to protect investors, the SEC voted December 13, 2006 to raise the asset accreditation minimum for investors in investments such as hedge funds, private equity, and venture capital from $1 million to $2.5 million.  Under the proposed rule, investors are not allowed to count real estate, such as their homes toward the $2.5 million minimum.  SEC Chairman Christopher Cox told reporters the day before the December 13 meeting that concerns about the “retailization” of hedge funds prompted the SEC to raise the accredited investor standard, which has been stuck at $1 million since 1982.  The SEC also voted for an anti-fraud provision under the Investment Advisers Act of 1940 that would make it “fraudulent, deceptive, or manipulative.. for an advisor in a pooled investment vehicle to make false or misleading statements or to otherwise defraud investors or prospective investors in that pool.”  Both proposals are out for a 60-day comment period.

 

     A recent study by the consulting firm Greenwich Associates indicated how strongly hedge funds have invested in the fixed income markets.  The have quickly become a one of the most dominant players in the world of debt.  Hedge funds are responsible for nearly 30% of all U.S. fixed-income trading, according to the survey.  That level which reflected activity over a 12-month period through April 2007, was double the amount of trading hedge funds accounted for the previous year.  Greenwich found that hedge-fund trading comprises 55% of U.S. activity in derivatives with investment-grade ratings, and also 55% of the trading volume for emerging-market bonds.  The rapid rise in hedge-fund trading underscores the changing nature of the debt markets.  Unlike many mutual funds that look for stable returns or pensions and insurers that want steady, long-term holdings, hedge funds frequently seek short-term gains through numerous trades they can amplify with borrowed money.  In some corners of the U.S. debt market, hedge funds practically are the market.  For instance, hedge funds generated more than 80% of the trading for derivatives with high-yield ratings, and more than 85% of volume in distressed debt, Greenwich found.  Hedge funds also accounted for a good portion of the trading in mortgage-backed securities. asset-backed securities, collateralized debt obligations and other parts of the debt market that have suffered recently as worried over sub-prime loans have spread.  Analysts say these debt instruments were developed primarily for sophisticated investors like hedge funds, which sometimes use these products to protect themselves.  But the debt securities have also been sold to pension funds and other institutions that may not completely understand them.

 

     Hedge funds have come under renewed scrutiny in recent months punctuated by the high-profile collapse of Bear Stearns’ two leveraged hedge funds which filed for bankruptcy protection last month as clients sue to reclaim their investments   The SEC sought fraud charges against Sentinel Management, which recently filed for chapter 11 bankruptcy.  The regulator alleges the money manager defrauded its customers when it co-mingled, misappropriated and leveraged their securities in violation of the Investment Advisers Act of 1940.  The complaint also alleger that Sentinel used securities from client accounts as collateral to obtain a $321 million line of credit as well as additional leveraged financing.

 

     Hedge fund managers will face a new restriction with the SEC’s anti-fraud rule, against a backdrop of spectacular failures in the $1.5 trillion industry.  The rule reinforces the authority of the Investment Advisers Act of 1940 governing cases where investors in a pool are defrauded by an adviser.  The SEC proposed the new rule to clarify its authority over account statements for investors, as well as private placement memos, offering circulars or responses to proposal requests for prospective investors.  It is widely felt that the new rule will most likely lead hedge funds to seek more advice surrounding the valuation of underlying assets in their disclosures.

 

      One greatly needed disclosure, utilized by hedge funds,  involves the true meaning of SIV’s (Structured Investment Vehicles) which have been in the news headlines of late.  These instruments make money by a simple arbitrage-like strategy:  they raise money by selling short-term, low-yield, asset-backed commercial paper and then invest the proceeds in longer term, higher yielding debt, such as bonds and mortgage-backed securities.  They use the cash flow from the higher yielding investments to roll over (pay-off) the commercial paper, and whatever is left is profit.  To remember the SIV investment strategy in an acronym, remember B-STILL.  B-STILL = Borrow ShorT, Lend Long.  Its a great strategy unless investors refuse to buy the commercial paper that finances the long-term debt, which is precisely what happened this past summer.  An inverted yield curve is poison to this type of investment strategy – long term yields undermine an entity’s ability to pay the suddenly higher short-term yields.  So to is a situation in which investors don’t trust the valuation or credit soundness of the holdings in the long-term debt.   This type of disclosure is essential when instruments which appear totally safe, like money-market funds, contain SIV’s to boost the yield.

 

HEDGE FUNDS RISKS YOU WILL NORMALLY ENCOUNTER:

 

WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME ALTERNATIVE INVESTMENT PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

 

WITH RESPECT TO AN INVESTMENT IN A HEDGE FUND (“FUND”), YOU SHOULD BE AWARE THAT:

 

• FUNDS ARE SPECULATIVE AND MAY USE LEVERAGE AND AS A RESULT THEIR RETURNS MAY BE VOLATILE.
• YOU MAY LOSE ALL OR PORTION OF YOUR INVESTMENT IN THE FUND.
• WITH RESPECT TO SINGLE MANAGER FUNDS THE FUND’S MANAGER HAS TOTAL TRADING AUTHORITY. THE USE OF A SINGLE MANAGER COULD MEAN A LACK OF DIVERSIFICATION AND HIGHER RISK. WITH RESPECT TO FUNDS OF FUNDS, THE FUND’S MANAGER HAS COMPLETE DISCRETION TO INVEST IN VARIOUS SUB-FUNDS WITHOUT DISCLOSURE THEREOF TO YOU OR TO US. BECAUSE OF THIS LACK OF TRANSPARENCY, THERE IS NO WAY FOR YOU TO MONITOR THE SPECIFIC INVESTMENTS MADE BY THE FUND OR TO KNOW WHETHER THE SUB-FUND INVESTMENTS ARE CONSISTENT WITH THE FUND’S HISTORIC INVESTMENT PHILOSOPHY OR RISK LEVELS.
• THERE IS NO SECONDARY MARKET FOR THE INTERESTS. TRANSFERS OF INTERESTS ARE SUBJECT TO LIMITATIONS. THE FUND’S MANAGER MAY DENY A REQUEST TO TRANSFER IF IT DETERMINES THAT THE TRANSFER MAY RESULT IN ADVERSE LEGAL OR TAX CONSEQUENCES FOR THE FUND.
• THE FUND IS SUBJECT TO SUBSTANTIAL EXPENSES THAT MUST BE OFFSET BY TRADING PROFITS AND OTHER INCOME. A PORTION OF THOSE FEES ARE PAID TO THE FUND.  THE FUND MAY SPLIT THOSE FEES WITH PRINCIPALS OR REGISTERED REPRESENTATIVES WHO SELL THE FUND..  SUCH FEE SHARING ARRANGEMENTS COULD PRESENT A CONFLICT OF INTEREST. WITH RESPECT TO FUNDS OF FUNDS, BECAUSE THE FUND INVESTS IN OTHER FUNDS AND FEES ARE CHARGED AT BOTH THE FUND AND SUB-FUND LEVEL, THE OVERALL FEES YOU WILL PAY WILL BE HIGHER THAT YOU WOULD PAY BY INVESTING DIRECTLY IN THE SUB-FUNDS. IN ADDITION, EACH SUB-FUND CHARGES AN INCENTIVE FEE ON NEW PROFITS REGARDLESS OF WHETHER THE OVERALL OPERATIONS OF THE FUND ARE PROFITABLE.
• A SUBSTANTIAL PORTION OF THE FUND’S TRADES MAY TAKE PLACE ON FOREIGN EXCHANGES THAT MAY NOT OFFER THE SAME REGULATORY PROTECTION AS US EXCHANGES.

A FUND’S OFFERING MEMORANDUM DESCRIBES THE VARIOUS RISKS AND CONFLICTS OF INTEREST RELATING TO AN INVESTMENT IN THE SPECIFIC FUND AND TO ITS OPERATIONS. YOU SHOULD READ THE OFFERING MEMORANDUM CAREFULLY TO DETERMINE WHETHER AN INVESTMENT IS SUITABLE FOR YOU IN LIGHT OF, AMONG OTHER THINGS, YOUR FINANCIAL SITUATION, NEED FOR LIQUIDITY, TAX SITUATION, RISK TOLERANCE AND OTHER INVESTMENTS.  PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.  THERE IS RISK OF LOSS WHEN INVESTING IN MANAGED FUTURES OR HEDGE FUNDS.

.

 

 

EMPLOYMENT DISPUTE RESOURCES

 

 

 

     1.  On June 5, 2002, a branch manager for UBS PaineWebber wrote a memo to all branch personnel, regarding a departing employee.  It read, “Non-Solicitation of Accounts” – “_______________ is leaving UBS PaineWebber to join another firm.  He has been a valued employee ans is leaving us as a broker in good standing.  Do not solicit any of his accounts, as we have agreed to let him take his book with him.  He has been a valued employee and we wish him the best as he faces new challenges.  Please contact me if you have any questions”.

 

     2.  April 1, 2003 – Registered Representative Magazine by David A Gaffen – Whose Clients Are They – “How much of a fight depends on many factors, including how the client came to the firm.  Reps can usually lay claim to clients that they recruited, especially those they brought with them”.

 

     3.  8-3-06 – Hearing transcript from NASD Arbitration 05-01659 page 741 by Jay Price, BAISI attorney, Employment Relations, with Bank of America for 25 years.  “We were permitting them (the brokers) to take with them, those clients before they came to BAISI….that they had brought to BAISI after they joined”.

 

     4.  July, 2007 – Registered Representative Magazine – PROBLEM – CLIENT OWNERSHIP – ” Brad, a wire-house advisor producing in excess of $5 million annually, serving only 22 client households, was wooed by a competing wire-house.  Brad and the new firm had come to terms on the size of the transition package (a total of 200% by the end of 24 months), start date and payouts.  Everything seemed to be moving along at a comfortable pace until the contracts were presented and reviewed by his attorney.  Counsel pointed out that the proposed agreement stipulated that all of his clients, both existing and those that would be acquired, would belong to the new firm.  Upon learning of this, Brad was advised that he should not sign on the dotted line”.

 

SOLUTION – “After attorneys for the parties had the opportunity to further discuss the matter, the agreement was modified to provide a “carve out” for Brad’s existing clients.  It was set forth that any clients brought to the new firm by Brad, plus any new clients added within 12 months of the transition date, would belong to him and any clients procured after that would be “owned” by the firm.  Brad joined the new firm several months ago.

 

     5.  October 15, 2007 – Investment News, “A number of Wall Street firms have signed a “recruitment protocol” including Merrill Lynch, Citigroup, Inc., UBS Financial Services, Inc., Raymond James Financial, Inc. and A.G. Edwards & Sons, Inc.  The protocol allows brokers to take clients’ names, addresses, e-mails, phone numbers and account numbers and titles prior to leaving their respective firms.  (The protocol provides that reps cannot make clients aware of their departure until after they have joined the new firm.  According to the pact, those clients who choose to follow the rep will have their accounts transferred within one day by the broker’s prior employing firm – Registered Rep Magazine, September 2007).  Representatives aren’t supposed to be sued if they make good-faith efforts to follow the protocol.  In a current lawsuit against A.G. Edwards reps, the Investment News article by Dan Jamison stated, “The litigation is unusual for A.G. Edwards, which has always told brokers that they own their books”.  (Currently, 54 brokerage and advisory firms* are signatories to the protocol, according to Ted Levine, of counsel at Wachtell Lipton Rosen & Katz in New York.  He wrote to the SEC in a comment letter on behalf of a number of wirehouses, “the sharing of client information under the protocol is permissible under the current Reg. S-P”.  “The protocol was reviewed by he [SEC], the New York Stock Exchange and [Washington-based NASD] prior to its implementation, “Mr. Levine wrote.  .

 

     6.  March 2004 – On Wall Street Magazine, by Mr. Schwartzkopf, Headhunter – ON TEAM BUILDING – “Let me get back to team building.  I’ve talked to many people about the issue and have been in the industry and created those programs.  They were built for one reason only………not to help the firms or the clients or the brokers.  They were built to keep assets at the firm.  There’s no other reason, no matter how they spin it”.

 

     7.  February 15, 2008 – Merrill Lynch suffered another defeat, this time against brokers who had transferred their book of business to Bear Stearns.  While Bear Stearns is not a signatory to the agreement that allows brokers at participating firms to move client accounts between those firms without fear of TRO litigation, the federal court in Ohio was persuaded that Bear Stearns should benefit by that agreement.  The court stated that Merrill Lynch could not prove a critical element for its injunction action, irreparable harm, because by the agreement “Merrill tacitly accepts that such an occurrence [brokers ACAT of accounts] does not cause irreparable harm.”  The court also rejected Merrill Lynch’s argument that it would lose customer trust and goodwill, reasoning that by the protocol, Merrill and industry peers “are well aware of, and content with, the idea that brokers will leave and take client lists with them.”  The agreement “significantly undercuts the notion that such behavior destroys customer goodwill”, wrote the court.  Source:  Merrill Lynch v. Brennan et al. (2007)

 

     8.  OnWallStreet, July 2008 – “Over the last several years, all the major wirehouses signed “The Protocol,” an industry agreement that essentially declared a cease-fire in the bidding war for talent.  As long as advisors followed The Protocol, they were unlikely to be sued.  The rules were strict, but fairly straightforward:  Advisors leaving a firm could take only their clients’ names, client account names/titles, phone numbers, addresses and e-mail addresses.  They could not take Tax I.D. or Social Security numbers, account statements, account numbers or pre-populated ACAT (Automated Customer Account Transfer) forms for the new firm.  Further, those clients cannot be contacted until the advisor has actually left the old firm.

 

     An advisor was also allowed to send cards – known in the industry as “wedding announcements” – to clients with the news that he was moving to a new firm, and how he could be contacted.  Adhering to The Protocol would override any contracts that the wirehouses might have made the advisor sign promising not to solicit clients when leaving the firm.  Although most independent firms are not signatories to The Protocol, anecdotal evidence suggests that in recent years wirehouses had not been suing advisors who left to go independent.  Pete Michaels, a name partner with Michaels, Ward & Rabinovitz LLP says that has changed in recent months.  Because of the slowing economy, the wirehouses are less likely to allow top producers to leave without a fight.  “If you’re a million-dollar producer and you leave, you’re getting sued if you don’t follow The Protocol – period”  His advice is simple:  Follow The Protocol carefully.  If your new firm is not a signatory, you can still be sued, but it’s your best defense – your old firm, as a signatory, should honor it.

 

9.  Currently, at least 75 firms have signed the Protocol since it was inaugurated by Citigroup Global Markets (Smith Barney) Merrill Lynch and UBS Financial Services in 2004.  While departing brokers may not shore with their new firm any client information prior to resignation, nothing in the Protocol alters the common law duty of loyalty as it relates to prohibiting a financial adviser from soliciting clients (to move their accounts) and staff (to join the new firm) before the adviser resigns.  Financial advisers must resign in writing and attach copies of any client information that they are taking.  While the financial adviser can and will bring a list of client account names/titles, he or she will provide that list to the former employer but will modify it to include the account numbers and to exclude helpful contact information like telephone numbers, addresses and email addresses.  Clearly, financial advisers will want to have a head start over their former adviser colleagues in the race to secure customer accounts.  Further, the protocol expressly does not alter any contractual obligations that financial advisers may have to their former firms by virtue of promissory note or retention bonus agreements that they signed.  Likewise, the Protocol does not shift responsibility for any trading errors that might have occurred at the former firm.  There may by defenses to each of those scenarios, but they will not be found in the Protocol.  Finally, by its language, the Protocol protects departing financial advisers only when they are leaving a Protocol signatory firm for  Protocol signatory firm.  If one or both firms is not a Protocol signatory firm, T.R.O. litigation and damages are available.  In spite of this, several courts of equity have refused to grant injunctive relief to financial services firms that are Protocol signatories.  That case law is relatively new but a trend is developing.

 

10.  In August. 2008, the California Supreme Court voided narrow-restraint exceptions for non-competition agreements for stockbrokers in California.  The court rejected that restraint idea and said these agreements are illegal.  Many brokerage firms, including most of the wire-houses, require brokers to sign employment agreements that restrict them from soliciting clients or taking customer information once they depart from the firm.  Now, non-compete, and possibly non-solicitation and other restrictions, no longer have a sound legal standing in California.  California law still allows non-compete agreements that prohibit the taking of trade secrets and confidential information, however.  The California Supreme Court did not specifically address the trade secrets issue, but the decision seems to give endorsement to the argument that employees (departing brokers) have the right to use some client information.  Since proposed revisions to the Securities and Exchange Commission’s privacy rules would allow brokers and advisers to take basic customer contact information, by permission of their former employer or in accord with the voluntary recruitment protocol, it is generally felt that relationships with clients is not really a trade secret.  This decision in California opens the door to challenges against restrictions on solicitation and the use of customer information by a departing broker.

 

11.  Regulation S-P, section 504 of the Gramm-Leach-Bliley Act, requires firms to receive the explicit consent of a client before his information is offered to a third party – i.e. an independent broker/dealer transition team.  Wachovia Securities Financial Network, LLC, one of the largest independent-contractor firms in the country recently commented to the SEC concerning the independent-contractor ramifications of the Act:

 

     “Finally, we request that the Commission change the proposal to exempt independent contractor registered representatives from the provisions applicable to employee registered representatives who changed broker/dealers.  Independent contractor registered representatives typically operate as small “doing business as” (or “DBA”) firms comprised of 1-3 registered individuals who contractually own their client relationships, but who choose to associate and are registered with a larger broker-dealer.  There independent contractors do not “change firms,” as the DBA firm for the customer remains the same.  Instead, the independent contractors change the broker-dealer with which they are associated and registered.  The customer information stays with these small DBA firms throughout the process of changing registrations.  The Commission should interpret the rule to conclude that the representative has not transferred firms when he or she becomes associated with a new broker-dealer, and therefore, the independent contractor register[ed] representative should be deemed to be exempt from the limitations on transferring customer information in this situation.  The newly affiliated broker-dealer firm is, of course, also regulated by the Commission and FINRA such that the privacy protections would continue to flow to the customer from the DBA firm’s new affiliation.  Any customer who desires not to continue to be served by a particular independent contractor registered representative who has become associated with a new broker-dealer would have ample opportunity to transfer to any other broker-dealer or to refuse to sign the documents that are required to transfer the customer’s account from one broker-dealer to another broker-dealer.  Without an exemption, the proposed rule would have to change in several respects to acknowledge some of the physical and conceptual impossibilities attendant to the independent contractor registered representative’s legal status.”

 

12.  Protocol for Broker Recruiting – The principal goal of the following protocol is to further the clients’ interests of privacy and freedom of choice in connection with the movement of their Registered Representatives (“RR’s”) between firms.  If departing RR’s and their new firm follow this protocol, neither the departing RR nor the firm that he or she joins would have any monetary or other liability to the firm that the RR left by reason of the RR taking the information identified below or the solicitation of the clients serviced by the RR at his or her prior firm, provided, however, that this protocol does not bar or otherwise affect the ability of the prior firm to bring an action against the new firm for “raiding” . The signatories to this protocol agree to implement and adhere to it in good faith.

 

13.  On Wall Street – April 2009 – For advisors considering a move, here are some dos and don’ts to help comply with the protocol:

 

     DO:

     *  Resign in writing to your local branch manager.

      *  Give your branch manager, at exactly the same time that you tender your resignation, a copy of the client information you are taking with you.

      *  Limit that client data to the following: client name, address, phone number, email address and account name

 

     DON’T:

      *  Do not solicit clients before resigning

      *  Do not take any client information not specified above (including account or Social Security numbers, copies of holding pages or monthly statements) or any information about accounts that you didn’t directly service.

      *  Do not be overly generous with yourself on accounts you share with other brokers, especially if you were working in formal or informal partnerships with those brokers.

 

THE PROTOCOL

 

     Often, RR’s move from one firm to another and both firms are signatories to this protocol, they may take only the following account information….client name, address, phone number, email address, and account title of the clients that they serviced while at the firm (“The Client Information”) and are prohibited from taking any other documents or information.  Resignations will be in writing delivered to local branch management and shall include a copy of the Client Information that the RR is taking with him or her.  The RR list delivered to the branch also shall include the account numbers for the clients serviced by the RR.  The local branch management will send the information to the firm’s back office.  In the event that the firm does not agree with the RR’s list of clients, the RR will nonetheless be deemed in compliance with this protocol so long as the RR exercised good faith in assembling the list and substantially complied with the requirement that only Client Information related to clients he or she serviced while at the firm be taken with him or her.

 

     To ensure personal disclosure information compliance with Gramm-Leach-Bliley (GLB) and SEC Regulation SP, the new firm will limit the use of the Client Information to the solicitation by the RR or his or her former clients and will not permit the use of the Client Information by any other RR or for any other  purpose.  If a former client indicates to the new firm that he/she would like the prior firm to provide account number(s) and/or account information to the new firm, the former client will be asked to sign a standardized form authorizing the release of the account number(s) and/or account information to the new firm before any such account number(s) or account information are provided.

 

     The prior firm will forward to the new firm, the client’s account number(s) and/or most recent account statement(s) or information concerning the account’s current positions within one business day, if possible, but, in any event, within two business days, of its receipt of the signed authorization.  This information will be transmitted electronically or by fax, and the requests will be processed by the central back office rather than the branch where the RR was employed.  A client who wants to transfer his/her account need only sign an ACAT form.

 

      RR’s that comply with this protocol would be free to solicit customers that they serviced while at their former firms, but only after they have joined their new firms.  A firm would continue to be free to enforce whatever contractual, statutory or common law restrictions exist on the solicitation of customers to move their accounts by a departing RR before he or she has left the firm.

 

     The RR’s former firm is required to preserve the documents associated with each account as required by the SEC regulations or firm record retention requirements i.e. six years after the account is closed.

 

     It shall not be a violation of this protocol for an RR, prior to his or her resignation, to provide another firm with information related to the RR’s business, other than account statements, so long as that information does not reveal client identity.

 

     Accounts subject to a services agreement for stock benefits management services between the firm and the company sponsoring the stock benefit plan that the account holder participates in (such as with stock option programs) would still be subject to (a) the provisions of that agreement as well as to (b) the provisions of any account servicing agreement between the RR and the firm.  Also, accounts subject to a participation agreement in connection with prospecting IRA rollover business would still be subject to the provisions of that agreement.

 

    If an RR is a member of a team or partnership, and where the entire team/partnership does not move together to another firm, the terms of the team/partnership agreement will govern for which clients the departing team members or partners may take Client Information and which clients the departing team members or partners can solicit.  In no event, however, shall a team/partnership be construed or enforced to preclude an RR from taking the Client Information for those clients whom he or she introduced to the team or partnership or from soliciting such clients.

 

     In the absence of a team or partnership written agreement or this point, the following terms shall govern where the entire team is not moving. (1)  If the departing team member or partner has been a member of the team or partnership in a producing capacity for four years or more, the departing team member or partner may take the Client Information for all clients serviced by the team or partnership and may solicit those clients to move their accounts to the new firm without fear of litigation from the RR’s former firm with respect to such information and solicitations, (2) If the departing team member or partner has been a member of the team or partnership in a producing capacity for less than four years, the departing team member or partner will be free from litigation from the RR’s former form with respect to client solicitations and the Client Information only for those clients that he or she introduced to the team or partnership.

 

     If accounts serviced by the departing RR were transferred to the departing RR pursuant to a retirement program that pays a retiring RR trailing commissions on the accounts in return for certain assistance provided by the retiring RR prior to his or her retirement in transitioning the accounts to the departing RR, the departing RR’s ability to take Client Information related to those accounts and the departing RR’s right to solicit those accounts shall be governed by the terms of the contract between the retiring RR, the departing RR, and the firm with which both were affiliated.

 

     A signatory to this protocol may withdraw from the protocol at any time and shall endeavor to provide 10 day’s written notice of its withdrawal to all other signatories hereto.  A signatory who has withdrawn from the protocol shall cease to be bound by the protocol and the protocol shall be of no further force or effect with respect to the signatory.  The protocol will remain in full force and effect with respect to those signatories who have not withdrawn.

 

     *  A partial list of at least 75 signatories includes Citigroup Global Markets, Inc., Merrill Lynch, Pierce, Fenner & Smith, Inc., UBS Financial Services, Inc., UBS International, Inc., Wachovia Securities, Inc., Wachovia Securities Financial Network, LLC, Raymond James & Associates, Inc., Morgan Stanley DW, Inc., A.G. Edwards & Sons, Inc, RBC Captital Markets Corporation, Stifel Nicolaus & Company Incorporated and Bank of America (BAISI).

 

  

AVOIDING THE PITFALLS OF IRS SECTION 72(t)

  

     FINRA is concerned about abuses related to early distributions from qualified plans.  It has but advisers on notice about “early-retirement investment pitches that promise too much”.  Specifically, the Financial Industry Regulatory Authority is concerned about abuses related to early distributions from qualified plans based upon section 72(t) of the Internal Revenue Code.

 

     That provision allows employees to take early distributions from their 401(k) or individual retirement account without suffering the 10% early-withdrawal penalty, so long as withdrawals are part of a series of substantially equal periodic payments that last for five years or until the retiree reaches 59 1/2, whichever is longer.  Notably, the IRS permits modification of the withdrawal methodology, but may impose a penalty.  It actually provided a one time-penalty free modification in October, 2002.

 

     Read another way, Section 72(t) can be a way for advisers to recommend that employees retire early, and therein lies the problem.

 

     Last year, New York and Washington based FINRA’s predecessor, the NASD, fined Securities America, Inc. of Omaha, NE, $2.5 million and ordered it to pay $13.8 million in restitution in connection with an investment scheme aimed at retirees from Irving, Texas-based Exxon Mobil Corp.  In June, Citigroup, Inc. of New York was ordered to pay $15.2 million by the NASD to settle charges that its brokers misled employees of BellSouth Corp. of Atlanta.

 

     Both companies were targeted for promising high returns and permissible withdrawal rates couples with unreasonable and misleading assumptions, the NASD said.  Victims of 72(t) abuses typically are in their 50’s, poorly educated and lacking in investment experience.  In many cases, they have worked for years in low-level supervisory or management positions, earning $45,000 to $60,000 per year.  They view receiving a lump-sum payment from their retirement plan of, say, $350,000, as a fortune.

 

     Their only question, posed to the financial adviser (and the adviser alone) with full faith, confidence and trust in the latter’s opinion, is: “Can I live on it for the rest of my life?”

 

     Responsible advisers who want to avoid getting snared in 72(t) problems should take the following five steps:

 

     First, discuss the risks.  As FINRA’s alert stated, not everyone can or should retire early.  Promises of earning investment income during retirement that is equivalent to income one would have earned by continuing to work “usually hinge on unrealistically high returns on investments and unsustainably large yearly withdrawals”.

 

     Second, explain the effect of fees and expenses, both initially and on a continuing basis.  One section 72(t) expert estimates that a 1% fee on portfolio assets shortens payouts to 29 years, from 36 years, in most illustrations, while 2% fees shorten payouts to between 24 and 26 years.

 

     Third, assume and project reasonable and conservative rates of return.  The law doesn’t require advisers to equate the return rate with the withdrawal rate, and advisers shouldn’t do so.  Moreover, FINRA faults returns projected to be 12% or more, for several reasons.  No one can predict investment returns; any return over 10.4% exceeds the historical long-term returns for the stock market and greatly exceeds long-term returns for less risky securities such as bonds, which are less than 6%.  Also, the stock market is inherently volatile, and returns during many years have been well below the historical average.  Similarly, advisers should explain various asset allocations among the major asset classes and demonstrate, how each asset class and asset allocation has performed historically.

 

     Fourth, assume and recommend reasonable and conservative withdrawal rates.  According to FINRA, many experts recommend withdrawal rates of between 3% and 5% per year.  One expert who has analyzed the numbers stated that using a 4% withdrawal rate instead of an 8% withdrawal rate nearly doubles the number of years that an investor’s original principal can be expected to last under normal market conditions.

 

     Advisers also should provide amortization schedules that aren’t limited to five t eight years.  Instead, they should provide the full amortization schedule.  This schedule will disclose declining principal balances, such as at the end of the retiree’s life expectancy, when the withdrawals will have depleted the value of the account.

 

     Finally, if the withdrawal rate becomes unsustainable, advisers should consider recommending that the client modify the withdrawal methodology, especially early on, regardless of whether the IRS imposes a penalty.  Incurring such a penalty may be the best strategy to ensure that the client doesn’t outlive their retirement nest egg.

 

 

 

UNDERSTANDING SECURITIZED TRUSTS

 

MORTGAGE BACKED SECURITIES

 

      The majority of modern foreclosure fraud cases have at their base, securitized trusts.  Current expertise in mortgage fraud requires an understanding of securitized trusts.  A familiarity with the methodology by which mortgage notes, mortgages and deeds of trust (“mortgage loans”) are transferred from the originator to the trustee and any restrictions or limitations relating to the transfer of mortgage loans is essential.  There are limitations on transfers of mortgage loans into securitized trusts as specified by New York law and the trusts themselves.  New York law is generally the applicable law specified in securitized trusts.

 

     While each securitized trust has its own name, they are generally referred to as the Pooling and Servicing Agreement, or PSA.  PSA’s are federally regulated and there are many federal laws and regulations that affect PSA’s.  The relevant federal regulation is found at Section 860 of the Internal Revenue Code.  If the PSA qualifies under the code, it is a “REMIC” which receives special tax treatment.  A typical mortgage pool contains several thousand loans usually worth a billion dollars or more.  That results in millions of dollars in cash flow payments each month from a Servicer (receiving payments from borrowers) to a PSA with the cash flow “passing through” the PSA without taxation to the investors.  This tax pass-through means that the PSA doesn’t have to pay taxes on roughly $50,000,000 to $100,000,000 per year.  If the tax “pass through” didn’t exist, there would arise a substantial tax on those funds.

 

     If a PSA or servicer or Trustee acting on behalf of the trust was found to have violated the Internal Revenue Code REMIC guidelines, the taxable status of the REMIC could be revoked, resulting in a very substantial tax plus a penalty.  To qualify as a REMIC, all of the interests in the REMIC must consist of one or more classes of “regular interests” and a single class of “residual interests”.  Regular interests can be issued in the form of debt, stock, partnership interests, of trust certificates, or any other form of securities, but must provide the holder the unconditional right to receive a specified principal amount and interest payments.  REMIC regular interests are treated as debt for Federal tax purposes.  A residual interest in a REMIC, which is any REMIC interst other than a regular interest, is on the other hand, taxable as an equity interest.  Additionally, all steps in the “contribution” and transfer process (of notes and deeds of trust) must be true and complete sales between the parties and must occur within the three month time limit from the Star-Up Day of the PSA.  The Start-Up day is a date specified in the PSA.  Therefore, every transfer of the notes and deeds of trust must be a true purchase and sale.  Consequently, the note must be endorsed from one entity to another.

 

     Securitization effectively severs financial responsibility for losses the original lender may suffer.  Securitization also converts the mortgage by rendering it unalienable.  Once certificates have been issued, the note cannot be transferred, sold or conveyed.  That is why securitization is so desirable to mortgage loan lenders.  PSA’s are available on the internet through the Edgar Data Base maintained by the SEC.  In Edgar, it specifies the depositor, the Trustee, the Master Servicer and Securities Administrator. the Sponsor, and the actual Company.  The debtor is a party to the PSA.  Indirectly, the mortgage loan is in the PSA.  That is because the main subject of the PSA is the mortgage loan, of which it is a party.

 

     Structured Asset Mortgage Investments are SAMI Trusts.  They are Alt-A Trust, Mortgage Pass-Through Certificates.  A SAMI Trust is a securitized trust registered with the Securities and Exchange Commission.  SAMI Trusts are among the trusts that frequently cannot produce essential documents and rely instead upon replacement documents.   These replacement documents are created by mortgage-servicing companies and law firms retained by the trusts.  Many trusts do not contain an actual list of the loans which are subject to the Trust; however some do in fact list the loans.  When that occurs and the Debtor’s loan is not listed as an asset on the Mortgage Schedule for the SAMI Trust, this suggests that the Trust does not own the subject Note and Deed of Trust.

 

     An Assignment of note is also identified as an Allonge.  A note, or an interest in a note, is transferred by way of negotiation.  Negotiation requires an endorsement and physical transfer of the note to the intended recipient.  Acceptance is also required in order to effect a negotiation.  An assignment of Note transfers the note along with the liabilities of the assignee on the subject notes.  An Allonge is a document so firmly attached to the note as to become a permanent part of the note.  An Allonge allows for endorsement of the note on the Allonge (assignment) where there is no space upon the Note for the endorsement.  The bottom line is that the SAMI Trust must own the Note and Deed of Trust on the Start-UP date in order to foreclose on a Debtor’s home.

 

  

SETTLING A CASE IN EXCESS OF THE $15,000 REPORTABLE LIMIT

 

 

*  FINRA arbitration claims settled under $15,000 are not reportable on a broker’s CRD after 24 months.

*  Settlements to multiple customers in one arbitration may be treated as a separate settlement for reporting purposes.

*  Legal fees and costs paid are not included in the settlement amount paid for FINRA reporting purposes.

  

                     A customer complaint against a stockbroker will remain on the broker’s Central Registration Depository (CRD) record permanently when the claim is settled for over $15,000.  If the claim is settled for under $15,000, then the complaint is removed from the CRD after 24 months.  May a complaint settled for more than $15,000 ever be considered as a settlement for less than $15,000 for FINRA purposes and removable in 24 months?  The answer is yes.

 

                     Form U-4 contains the disclosure questions with respect to customer complaints.  Question 12-I(1) of Form U-4 asks whether a broker has been named as a respondent in an investment-related customer-initiated arbitration or civil litigation in which it was alleged that the broker was involved in one or more sales practice violations and which was settled for $15,000 or more.  If the customer complaint meets all the reporting requirements contained within this question, it is disclosed and reported on the broker’s CRD, where it remains permanently.  If the answer to Question 12 I(1) is “no”, because the customer complaint was settled for less than $15,000. then the customer complaint will remain on the broker’s CRD for only 24 months (if the compensatory damages alleged by the customer were $5,000 or more).

 

                     Registered representatives are always concerned about customer complaints on their CRD since they are available for review by potential clients on “Broker-Check”.  As a result, brokers oftentimes indicate that they want the case to proceed through arbitration, where they believe they will be victorious and the claimant’s claims will be denied by the panel.  If the panel denies the claims after a full evidentiary hearing, then the complaint is removed from the broker’s CRD.

 

                      However, there is expense and risk associated with proceeding through arbitration, and broker-dealers sometimes prefer to minimize this risk by way of a settlement.  A brokerage firm’s desire to settle a FINRA arbitration may be hampered by the protests of the registered representative who, although he/she may not be responsible for paying the legal bills or award, would like to proceed to arbitration to clear his/her name.

 

                      Many times, the claimant will not accept a settlement or an amount less than $15,000, and the settlement negotiations stall when the payment of some relatively small additional amount may be acceptable to the claimant.  In these type of situations, creative approaches allow a payment to a claimant and their counsel in excess of the $15,000 reportable threshold, but still allow for the settlement amount to remain under $15,000 for FINRA reporting purposes.  For example, if there are multiple claimants who jointly file a Statement of Claim, FINRA will permit a settlement payment to each claimant of under $15,000, removable after 24 months.  The careat to this approach is that the broker’s CRD will have to be amended to reflect the additional separate complaints for the applicable 24-month period.

 

                       Another way around the $15,000 reportable threshold is through payment of attorney’s fees.  Attorney’s fees paid to a claimant’s counsel are not included in the settlement amount for CRD reporting purposes.  A broker-dealer may pay such fees to claimant’s counsel in excess of the $15,000 settlement reportable limit without negating the need to report such as a settlement for only 24 months.

 

                        In addition, forum fees are not included in any settlement amount.  A broker-dealer can reimburse claimant’s their forum fees incurred in connection with the filing and processing of the arbitration without having any effect on the reporting requirement limits.

 

                         These approaches to the characterization of payments and their counsel are discussed by FINRA in guidance on its website www.finra.org.  The FINRA website guidance is entitled “Form U-4 and U-5 Interpretive Questions and Answers.”  These questions and answers refer specifically to the reporting of customer complaints, settlement limits and monies which can be paid to claimants and their counsel in connection with the settlement.  This FINRA Question and Answer Advisory specifically states that payments made for attorney’s fees and reimbursement of FINRA fees incurred by a claimant are not considered to be part of any settlement.

 

                         Framing payments to claimants and their counsel in this fashion may result in settlements that will be acceptable both to claimants and brokers concerned about their permanent CRD records.  Counsel should be aware of any of the aforementioned approaches to adequately represent their stockbroker clients.

 

EXCERPTS FROM NASAA GUIDELINES

 

Investors must meet:

 A. Minimum income & net worth standards, established by program

 B. Can reasonably benefit from program based on prospective participants overall investment objectives and portfolio structure.

 C. Is able to bear the economic risk of the investment, based on prospective participants overall financial situation.

 D. Has an apparent understanding of the:

 

1. Fundamental risks of the investment
2. The risk that participant may lose the entire investment
3. Lack of liquidity of program
4. Background & qualifications of sponsor
5. Tax consequences of the investment

 Conclusion – The Sponsor and each person selling the program interests will make a suitability determination based on AT LEAST:

      Age

     Investment objectives

     Investment experience

     Net worth

     Financial situation and other investments of the prospective participant

     Any other pertinent factors

 

Source – CCH – Topical Law Reports # 78 – 7-27-94

3601,3602 & 3605