Monday, September 20, 2010

Investor beware

An you want to invest in Stocks! Thanks Suzie for the article.

Aivars Lode

Inside the boiler room: 'Clients are Bambi - we shoot Bambi'
September 20, 2010

Explosive documents and phone tapes reveal an investor's worst nightmare about stockbrokers. Stuart Washington reports.

PETER McGUIRE is, by all appearances, the super-successful stockbroker fronting CWA Global Markets, with a fondness for $200,000-plus Mercedes cars.

At the height of the boom his business was selling risky financial products like hot cakes, allowing its top broker to take home $45,000 a month in commissions. McGuire, 51, has also flourished, both professionally and personally. He is a regular performer on the US business television channel CNBC. In 2008 he added a $1.25 million semi in Coogee to two other eastern suburbs properties he owns.

In contrast to McGuire's smooth media manner, former staff portray him as a mercurial figure who demands a churn-and-burn mentality of his staff.

Or, as an October 2007 CWA presentation put it: “Clients are Bambi . . . we shoot Bambi.”

If the team did not meet sales targets, former staff say, McGuire called them f---wits and dumb c---s.

Sensitive company documents and tapes of phone conversations obtained by the Herald paint a picture of a sales-driven business that repeatedly puts its customers last.

It is a well-known standard practice within the broking industry, including CWA, to tape and retain all telephone conversations for customer service and internal compliance purposes.

In a 2007 conversation taped through the internal system with CWA's top broker, Ben Howarth, which later appeared on YouTube, McGuire says: “Can you spend whatever you have got in your [customers'] accounts?”

Asked by email about the claims against CWA, McGuire replied: "From the issues you raise I can say that you have been misinformed in a number of key respects."

He urged the Herald to take great care and seek legal advice if it was going to "publish vexatious or unfounded allegations and confidential materials".

The documents reveal a company that profited extensively in the mad-money days of late 2007 when investors were seemingly heedless of risk.

The documents show CWA investors often lost the lot, with one spreadsheet showing more losers than winners over a 2-year period.

A former employee, who requested anonymity, says of the culture within CWA: "There was an emphasis on extracting the money out of the client and placing it in the market without a consideration of the market."

CWA makes its profits by charging customers an extremely high price for financial products known as warrants. One undated company document shows CWA charged investors an extra 25¢ for every dollar of financial product they bought. CWA never told its investors about this charge in its sales documents.

CWA has left behind a trail of angry customers and disaffected staff. Customer anger has been captured in 17 minutes of internal recordings of repeated calls from a customer, Tony Michelutti, who lost $20,000 on a trade on cocoa.

"What a joke, f---ing joke, threatening me with the police and telling me he cancelled the account," Michelutti says at one point.

Former staff say McGuire frequently refers positively to a US movie about a ruthless broking firm, Boiler Room. Boiler room is US slang for a high-pressure brokerage selling worthless stock, usually staffed by impressionable youngsters.

McGuire is also said to regularly quote a movie about hard-driven and desperate real estate salespeople, Glengarry Glen Ross, using the line "ABC – Always Be Closing".

The October 2007 company presentation is full of the language of high-pressure sales tactics to “close” a sale, including: "Make no mistakes – we don't expect everyone to be here this time next year."

The presentation included sales targets and an exhortation: "Together we will hit the headline forecast."

The last line of the presentation states: "Focus on QUANTITY and $VALUE of trades: more trades = more commission $$$ for you."

McGuire's approach to his brokers is featured in the audio clip, once posted on YouTube, of his internal phone call to Howarth, the star broker.

McGuire: Benny, how are you son?

Howarth: Yeah, good mate, good.

McGuire: Um, can you just spend whatever – I know it's not hard for you because you are a very good spender of people's money – ah, can you spend whatever you have got in your accounts?

Howarth: Yeah.

McGuire: Can you spend whatever you have got in your accounts?

Howarth: Yeah, no, I'll try. Yeah, I'll try, I know.

McGuire: Just get it, exhaust it, because they are phoning me every day [asking], How are you going to [reach] budget?

Peter Dvorak, a former compliance officer with CWA, said customers lost money because "that's the nature of those [financial] products".

"The more you know about them the less you want to get involved in it," Dvorak said. "There was a comprehensive product disclosure statement but I think most people would not read it."

CWA has not escaped the notice of the corporate watchdog, the Australian Securities and Investments Commission. An internal complaints register shows ASIC contacting CWA three times in late 2005 and early 2006. The complaints were successfully addressed by CWA.

In Glengarry Glen Ross, the empty pursuit of money is ruthlessly exposed.

It appears McGuire has taken a leaf from his favourite movie to play “the man's game” – and it is the investors who have been burnt.

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