If I had to guess, AER probably had to make some public disclosures regarding Deutsch's general activities in the mkt. So my guess is that people, including Hempton, knew on whose behalf AER were acting.
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Did Fidelity Cheat Its Own Client Out of Millions of Dollars?
- Thread starter Ninja
- Start date
sounds plausible. thanks.If I had to guess, AER probably had to make some public disclosures regarding Deutsch's general activities in the mkt. So my guess is that people, including Hempton, knew on whose behalf AER were acting.
Good article, although it took a few readings to digest all of the info.
Fidelity claims "it didn't lend out Deutsch's shares under its fully paid lending program but rather under the authority it says it has to lend shares out of a client's margin account."
If Deutsch wanted to prevent Fidelity from loaning out his shares, then he could have placed his entire stake in a CASH account from the onset. Instead, O'leary advised him to move shares into a cash account from his margin account AFTER he became suspicious that FFOS was loaning out the shares.
The guy made $60 million on Direxion triple leveraged and inverse funds. Those of course are DAY TRADING vehicles so Deutsch is obviously a risk taker. He took a huge stake in a Chinese stock that had internal issues and defaulted on a bond payment. O'leary "compiled a list of a dozen beaten down companies" and Deutsch bought in by accumulating a huge stake in China Medical, which ultimately filed for bankruptcy. In other words, Deutsch played the stock market game with a beaten down company, and lost.
Fidelity's claim that Deutsch was "trying to illegally manipulate China Medical shares" is laughable. There was no mention that Deutsch was SELLING shares when the price nearly tripled! In fact, the article mentions the guy was STILL buying despite two short sellers posting negative reports, and during a time when many Chinese firms were being accused of accounting fraud. The article also mentions that AER (O'leary's advisory firm) "did ultimately receive four SEC subpoenas and an on-site audit by New Hampshire securities officials. Regulators took no further action against AER." If the regulators didn't find anything, then it's doubtful that FINRA will either, at least not regarding any malfeasance on the part of O'leary as a financial advisor, and certainly not of Deutsch.
I don't think Deutsch has a solid case against either FFOS or its parent company, however it seems the purchase by Fidelity Capital Markets of the remaining China Medical Shares it needed for compliance purposes was probably ill timed.
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What about the part where Fidelity disabled his account's buying ability so they could front run him in covering their own short squeeze?
Sounds like there are some good signals out there if Deutsch made that much $$.
U gotta remember that Buffet did the same thing. He purchased Berkshire (originally a fabric company) when it was at a rock bottom price, and he almost went under because of it because the company almost collapsed. Like trying to catch a falling knife.
I recon just throw the case out. He jumped on a sinking ship. He might manage to get his $$ back through Fidelities practices tho. He'll be laughing all the way to the bank if he wins in court. Which I think will happen. Is there a link between China Medicals blow-up and his trading? Not in my opinion. Had Fidelity not done any suss practices he'd lost $$. Unless I'm missing something.
I wonder how much the bond payments were and whether deutsch could have pitched in. It says that China Medical had $200 mill cash didn't it? How did they miss a bond payment?
U gotta remember that Buffet did the same thing. He purchased Berkshire (originally a fabric company) when it was at a rock bottom price, and he almost went under because of it because the company almost collapsed. Like trying to catch a falling knife.
I recon just throw the case out. He jumped on a sinking ship. He might manage to get his $$ back through Fidelities practices tho. He'll be laughing all the way to the bank if he wins in court. Which I think will happen. Is there a link between China Medicals blow-up and his trading? Not in my opinion. Had Fidelity not done any suss practices he'd lost $$. Unless I'm missing something.
I wonder how much the bond payments were and whether deutsch could have pitched in. It says that China Medical had $200 mill cash didn't it? How did they miss a bond payment?
The problem is that, clearly, nobody knew what they did and didn't have...Sounds like there are some good signals out there if Deutsch made that much $$.
U gotta remember that Buffet did the same thing. He purchased Berkshire (originally a fabric company) when it was at a rock bottom price, and he almost went under because of it because the company almost collapsed. Like trying to catch a falling knife.
I recon just throw the case out. He jumped on a sinking ship. He might manage to get his $$ back through Fidelities practices tho. He'll be laughing all the way to the bank if he wins in court. Which I think will happen. Is there a link between China Medicals blow-up and his trading? Not in my opinion. Had Fidelity not done any suss practices he'd lost $$. Unless I'm missing something.
I wonder how much the bond payments were and whether deutsch could have pitched in. It says that China Medical had $200 mill cash didn't it? How did they miss a bond payment?
The issue I have with Deutsch is that, according to the story, he behaved as some sort of a strange cross between an investor and a trader. That's always a recipe for some sort of nastiness, IMHO.
What about the part where Fidelity disabled his account's buying ability so they could front run him in covering their own short squeeze?
Would you be upset if Fidelity prevented you from buying MORE of a stock which ended up filing for bankruptcy? Or would you be thanking your lucky stars that you didn't throw good money after bad?
Deutsch had $155 million dollars up with Fidelity, of which a large part was allocated to shares of this risky Chinese play.
The article cites that GE had an original stake when it went public, its accounting firm was Price Waterhouse, and that O'learly believed the stock was worth $30. All that is fluff.
My guess is the FINRA arbitration centers on whether or not Fidelity Capital Markets was allowed to purchase the required 1.8 million shares it needed in the open market to satisfy its compliance measures. Fidelity will claim that it was legally able to purchase the shares. The fact that it spiked up 300% is immaterial, that is what happens in a short squeeze. According to the article, China Medical had 5 million of its shares sold short. The dispute centers on whether or not Fidelity loaned out Deutsch's shares in particular. Fidelity claims the following: “Clients who choose to open a margin account sign margin agreements that consent to securities lending.”
O'leary advised Deutsch to move the money from his margin account to a cash account, however my guess is it was too late, and Fidelity probably already loaned out his shares, which they will claim they were entitled to do.
Again, if Deutsch didn't want Fidelity to loan out shares, then he could have done so by acquiring the shares in a cash account while the shares were still listed, before it went to the OTC.
The stock he chose to accumulate was thinly traded, and Deutsch took a very high stakes bet, which ultimately didn't pan out when the firm filed for bankruptcy. Indeed, the article claims the following: "Deutsch’s investment in China Medical might have sunk to zero no matter how his brokerage had behaved."
Ironically, Fidelity told him he "could sell" but instead Deutsch was still trying to buy. Perhaps he should have taken Fidelity's advice and just sold as much as possible when he had the chance to exit with a decent profit, instead of being a crusader and gain the 66% control he wanted. But he is from a very wealthy family with lots of money to burn, so to each his own.
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Undoubtedly, Deutsch is trying to get Fidelity to pay for his bad bet, using everything that happened as an excuse.
i guess it depends on what the rules are about shares already lent out of a margin account which are then moved to a cash account. How long does Fidelity have to recall and were they ever in violation of the customer's instructions?
Also, what legitimate reason could Fidelity possibly have to prevent Deutsch from buying more? Their suggestion that they suspected manipulation sounds like bullsh1t and it's more likely that, as another poster suggested, they didn't want prices to go higher as they were getting the shares back.
i guess it depends on what the rules are about shares already lent out of a margin account which are then moved to a cash account. How long does Fidelity have to recall and were they ever in violation of the customer's instructions?
Also, what legitimate reason could Fidelity possibly have to prevent Deutsch from buying more? Their suggestion that they suspected manipulation sounds like bullsh1t and it's more likely that, as another poster suggested, they didn't want prices to go higher as they were getting the shares back.
Undoubtedly, Deutsch is trying to get Fidelity to pay for his bad bet, using everything that happened as an excuse.
Agreed.
"Deutsch himself is undaunted. While he’s moved his brokerage account from Fidelity to Charles Schwab, his keenness for aggressive investing remains intact. So does his willingness to live with the consequences if his investments blow up, he says. But he staunchly rejects the notion that China Medical was a bad bet, and he’s spending a small fortune to prove Fidelity is at fault."