Ethics in Motion: Bertrand P. Holley Ethics & Social Responsibility - Part 2

Uploaded by businessEIU on 28.03.2011

(Justin Paperny). Alright, so I did,
I went to the UPS office across the street,
I figured my branch manager told me that it was okay,
I got three money orders for $250, picked out three
random clients that hadn't agreed to do the plan, I called
them and told them that I was doing it as a gift, filled it
out quickly, walked in to my compliance managers office.
I totaled 40 plans, 2 weeks later I got a check for $10,000.
I felt like I had schemed the system I guess, but I figured
my manager said that it was okay and
I liked the bonus, and it worked.
I didn't think about any ethical implications that could have
followed doing that, or my colleagues who worked harder
and didn't qualify for the bonus and didn't cheat.
At the time I figured it was okay.
Well, after about a year and a half at Merrill Lynch,
I decided to leave.
I was having a lot of success and in the brokerage industry
there is very little loyalty, if you produce,
other firms come knocking and they did.
After about a year and a half, I jumped ship to one firm, and
before I know it I'm 25 years old, working at Bear Sterns.
At the time I was the youngest broker
they had hired in that office.
The problem with that was I had only been a producer for about
three years, and I had convinced myself that I had made it in the
brokerage industry by virtue of working at Bear Stearns.
By virtue of my paycheck, when in reality all
I was was a cold calling stock broker.
And around that time, I really started to make some decisions
that were selfish, and simply thinking only about me.
For example, I would call a client in the evening to do a
trade, and the client was reticent, he wasn't going,
he wasn't buying it, he didn't want to do it.
So maybe I would make something up, or I'd make
an exaggeration making the client feel comfortable.
Then they'd do the trade, and then at the end of the day maybe
that trade would work out, I would get a commission if the
client made money on the trade and it was
a real win, win, that's what I told myself.
It was those types of decisions that slowly put me on a path,
yet no one really seemed to mind at Merrill Lynch or at Bear
Stearns as I continued to advance and get paid.
Well ultimately UBS came knocking, UBS is the Swiss Bank.
And at the age of 26, UBS offered my senior partner and I
a million dollars to move our booking business.
A million dollars at 26, as a team we had about 700 clients,
150 million in assets, and a million dollars to split.
And I'll tell you, I thought it was all the money in the world,
I really did, I didn't realize the implications
that come with taking that type of check.
And working at UBS at 26 years old, I truly started
to feel a great deal of pressure for the first
time on a number of fronts.
One, when you get a bonus of that size and you receive a
salary of that size, they really are expecting
you to produce at all costs I learned.
It was a great sum of money at a young age.
Two, my business partner and I really struggled to move our
book it business over from Bear Stearns over to UBS.
The 150 million we told UBS we had, we only brought over about
60 percent of it, it wasn't a very big number.
That unfortunately the time we moved our book it business there
was a seismic change that took place in the brokerage industry.
For example, when I went to UBS I was
a cold calling stock broker.
If you had a $100,000 account with me, if you had a $100,000
account with me, I could cold call, and I could trade that
portfolio to $10,000 a year in commissions, buying
and selling stock day in and night, $10,000 a
year on a $100,000 a year account.
I liked to trade, I was good at it.
UBS put this new model into place which said, they no longer
wanted brokers like me trading, they wanted
us to moved to managed money, fixed fees.
In other words, you'd pay 2% a year on your hundred grand.
So instead of the $10,000 that I'd grown use to, your account
is only going to pay me $2,000 with this new fixed fee model.
Well that's an $8,000 difference just in your account, now you
extrapolate that out over a 150 million in assets, 700 accounts,
our production fell by more than 70%.
Hardly the type of production that UBS expected if they are
going to give you a million dollar bonus.
And with that, came real pressure from management,
telling us about the bonus, telling us if we don't produce
there are repercussions, repercussions in regards to
getting fired and not getting that money back, because they
think we had misled them in regards to our production.
We didn't, we just weren't producing as much,
they didn't give us time to make it right.
And my business partner and I grew very scared and looking for
any opportunity to fill the gap in commissions at UBS.
And the opportunity to fill that gap, to make up for the 60%
reduction in commissions came about a year
after I went to UBS in June of 2002.
In June of 2002, I received a call from a gentleman named
Keith, Keith was a hedge fund manager that had 6 million
dollars under management at Bear Stearns, 6,000,000 bucks.
And at that time my book it business was comprised of
professional athletes, individual investors,
and hedge fund managers.
And when Keith called me to transfer in that six million
dollar account, my business partner and I were very excited.
We were very excited because we knew that Keith would trade
aggressively and generate tons of commissions, and he did.
But I should tell you something that's worth noting when I
agreed to take Keith's six million dollars.
When I took Keith's six million dollars, I told Kenny,
I told my boss, I told everyone truthfully, I knew that Keith
was an unethical, unscrupulous business manager.
I worked with Keith six years earlier when I got
into the brokerage business, he worked
in the cubicle right next door to me.
I heard things that Keith would say
on the phone to close a deal.
I heard him lie, I heard him cheating, I heard him say
anything to close a deal.
I say that, because when Keith called me six years
later to transfer his account, I knew
that he was a dishonest businessman.
I never should have accepted his portfolio.
I knew that something bad would happen that day,
I knew it the day I took his six million bucks.
Well, those feelings I had about doing business with
him didn't stop me from accepting his money.
I knew how much in commissions he would generate, I knew he
would fill the gap, and I knew I would have secured my
position at UBS and I could start to advance again.
We transferred in the six million dollars.
That first month he did 25,000 in commissions.
The second month he did $50,000 in commissions.
The third month he did nearly 100,000.
That was a lot of production, that was a lot of business.
Now my senior business partner who I was always feuding with,
starts to tell me that he was thinking about giving me a
raise, which was something I had wanted for so long.
He's talking about a raise, well, while my
client is doing a lot of these commissions,
something interesting is happening.
Every penny that my client raised over that
first six months and then a year he lost.
12 million dollars in the first year,
he lost all of it, all gone.
Now I should tell you my experience alone, an experience
that you would have picked up on as well, my experience alone
should have told me that you can't raise 12 million dollars
from individual investors if you're losing money.
No one in their right mind would turn your money over to a
portfolio manager that had lost 100%, don't do it.
We saw these losses, we saw the money raised, that was the first
sign that something was going on, it's the first thing the FBI
wanted to discuss with me, did you not think there was
something wrong with those losses in the first year?
Truthfully all I cared about was the production and the
commissions and that I was starting to hit my quota.
I wasn't necessarily thinking about the losses.
Well, after about another year my client continued
to raise money, he continued to lose money.
For the first two years I never saw an investor, all I did was
execute his trades when he called in in the morning.
Though I knew about the losses and I continue
to take the commissions.
Well after about two years, my clients
started to struggle to raise money.
And that's when he needed the help of
the stock broker, the broker at the big UBS.
And my client called me and said, I'm on my way down to your
office, and he was coming down with a gentleman
named John Farrar, a very nice man.
John Farrar was a little older investor who was
contemplating giving four million dollars to my
client the hedge fund manager.
Four million bucks.
Keith my client called and said I need you to attend this
meeting to talk a little about UBS, the client wants to know
where his assets are going to be housed.
And I told my client, I'm very uncomfortable attending this
meeting, I'm not sure it's right for me.
I had never seen an investors face before.
He said it's too late, we're on our way down.
So after about an hour or so they walk into my office, and my
senior business partner Kenny looks at John Farrar the
prospect, and said to John, so why are you contemplating
giving four million dollars to our client Keith?
Why do you want to turn over your four million bucks?
And John looked us directly in the eyes and said well Kenny and
Justin, you've seen the rate of return the hedge fund is
delivering, and performance sells itself.
Now clearly we knew that our client had lost every penny that
he had raised, and he was referencing a
performance that didn't exist.
And I looked at my partner Kenny and said, well I looked and
said, we don't want to ask those sorts of questions.
And my tendency in life is to talk too much and write too
much, I don't know when to shut up at times.
I kept my mouth shut that whole meeting,
I just kept my mouth shut.
I never corrected the investor as he was going
to deposit four million dollars.
I didn't correct him, I just kept my mouth shut thinking
if I said nothing that it was okay.
My mouth shut, I said maybe four words
that whole meeting, nothing.
But the next day that four million dollar deposit came in.
Well right around this time that this money was coming in,
knowing that this investor would lose it, I grew to
be very concerned and very scared.
Scared because I didn't want to be sued, not if, but when my
client's investors continued to lose every penny.