Dead Fit - 22. Chapter 22

Chapter 22

On Tuesday morning, I woke up before my alarm went off. I was still excited about my find from the previous night. Sandy was a smart cookie and a trusted friend. If there was anyone who could help me understand investment scams, it would definitely be Sandy.

I had an appointment with Trevor in the morning. He was still high from our conversation and his workout was stronger than ever. At the end of our session, I reminded Trevor that he was scheduled for a training session with me on Thursday. It was the last session we'd have before his wedding.

“You think we can reschedule our appointment to Friday? I figure the extra day may help.”

I wasn't sure if one day would really make a difference, but since my future as a personal trainer was riding on Trevor's weight, I was willing to give it a shot. “Sure, Trevor, I can schedule you for early afternoon.”

Before my next appointment arrived, I had some downtime, so I checked my personal email. The stars were aligned in my favor. Sandy emailed me back and let me know she was free all afternoon. She said I could stop by her office when I had a chance. The address she left me was all the way in downtown Los Angeles, too far for me to go during the lunch hour. I’d have to find an excuse to leave early. I hit the reply button letting Sandy know I’d be at her office around three o’clock.

I spent an hour with my next client and after she left, I took off for lunch at noon. When I returned to the office, I kept busy at my desk updating client files and filling out paperwork. After an hour, I poked my head into Gary's office and said, “Gary, I think I need to head out and see a doctor. I'm still not feeling well. It’s probably residual from what I had last week.” Just to be sure he had a vested interest in letting me go for the afternoon, I added, “I just want to make sure what I have isn’t contagious.”

“What about your clients,” Gary asked. Thanks a lot for your concern for my health, jerk.

“I only have one client left and Kara agreed to fill in for me. I was just planning on doing desk work for the rest of the afternoon, anyway.”

“Alright, Marshall, but I'm going to have to dock you pay for the afternoon.” Like that was a big surprise.

I left the gym at two and made my way to Sandy's office. The drive to downtown LA was a headache. The 20-mile drive lasted an hour, starting on the congested 405 and ending on equally-as-congested 110. By the time I reached the Arco Towers, sweat soaked my Sports Courts shirt. I pulled into the parking garage and paid my $14 for an all-day parking pass.

According to the building directory, the accounting office of Murphy & O'Brien could be found on the 16th floor. I took the elevator up and after stopping off at nearly every floor to drop off or pick up passengers, I made it to my destination.

I pulled open the heavy glass door to the firm. The receptionist was on the phone, so I waited patiently until she finished her call. When she was done, she hung up and stared at me. No doubt she was focused on the sweat rings around the armpits of my shirt. Finally, she asked, "May I help you?" Given her attitude, I think she really wanted to ask, "What do you want?"

"Yes, I'm here to see Sandy Nguyen."

"Do you have a delivery for her?"

"Actually, I have an appointment with her."

"And your name?"

"Jaysen Marshall.”

"Oh, just one moment then."

The receptionist called Sandy’s line. "Yes, Ms. Nguyen, you have a gentleman here who claims he has an appointment with you. A Jaysen Marshall."

This accounting firm was feeling more like Fort Knox.

"Oh, I’m sorry Ms. Nguyen. Yes ma'am, I'll let him know."

The receptionist hung up the phone and in a sudden change of attitude, said in a very pleasant tone, “Ms. Nguyen will be right with you. Please, have a seat.”

I sat down and flipped through the latest edition of Public Accounting Review magazine. I imagined accountants salivating like perverts while looking at the charts and graphs in the magazine. I could just see them getting turned on reading about Sarbanes-Oxley regulations.

I’d been sitting for less than a minute when Sandy came from a corridor to the left of the receptionist's desk. She looked exactly how I remembered her -- which unfortunately for Sandy meant that she looked like a senior in high school.

"Jaysen! So good to see you again." Sandy threw her arms around me and gave me a warm hug.

On the way back to her office, I gave Sandy a quick update on my two-month old career as a personal trainer. She uttered some noises that I couldn't quite decipher as approval or disapproval.

When we reached her office, it looked just as I imagined it: tidy and organized. Sandy's office was modestly furnished with an executive desk, leather chairs, and artwork that could have been in a local art gallery.

“So, tell me about what's going on with you, Sandy,” I said.

"Well, as you probably remember, I went to UCLA. I was lucky; I managed to finish in three years.”

“How did you do that,” I asked.

“Summer school and AP credit from high school,” Sandy explained. “After college, I joined the Securities and Exchange Commission, better known as the SEC, as an investigator. With my degree in accounting, the SEC hired me to investigate crimes involving investment fraud. My first few assignments were high profile and I ended up getting my name in the press pretty quickly.

"A year and a half with the SEC and I had enough. Don't get me wrong, the SEC treated me well. But let me just say with my name being in the news for helping crackdown on financial crimes, my pool of friends started shrinking.

"A friend at Murphy & O'Brien let me know of an opening as an auditor and here I am, today. Now, my work life is much more low-key – and I couldn’t be happier.

"Oh yea, somewhere in the last two years, I got married, too.” Sandy held up her left hand and showed me the ring on her finger. “But like a good Vietnamese woman, or an American feminist, I kept my family name."

"Congratulations, Sandy! Do I know the lucky man?"

"Nah, I met him at UCLA during my second year. He was finishing Law School. He works just right up the street from here. You should meet us for lunch or drinks sometime. He reminds me of you -- except he's even whiter."

"Wow. So you married out of your race? How did your family take it? They always seemed so traditional."

"Mom was fine with it. Not so much Dad, though. He's getting over it. In the end, I think all families want their kids to be happy. It just takes some people longer than others to realize it."

My sentiments exactly.

Sandy smiled at me and I knew what question was coming up next. "So, enough about me. Are you married yet?"

"No, I’m not married yet," I said with grin.

"Do you have a girlfriend?"

"No, I don't have one of those, either."

"Dating?"

"Sort of."

"Tell me about her."

Here we go again. "Well, actually, 'she' is a he."

There was an awkward pause and I almost regretted saying anything to her. Then Sandy burst out, "I knew it! You were always too good looking and too nice to be straight!"

"That's just a stereotype. There are plenty of gay jerks out there."

“So, tell me about him.”

I gave Sandy the Cliff's Notes version of Brian. Since we'd been seeing each other for only three weeks, it wasn't hard to condense. But as I told her about where Brian and I were at in our relationship, it seemed liked we’d been together for months. I guess it is true what they say about queer relationships, one gay week equals one straight month.

"So, going back to what you were saying earlier, about you working for the SEC,” I said. “I was doing some research online and I stumbled on several articles with your name in it."

"Oh?"

“Yea, I was looking for information on common financial scams. I read stuff on ponzi schemes and front-running.”

“Why the interest in financial scams?”

“My parents use a financial advisor, Sandy, and I just want to make sure that he's honest.” I felt a pang of guilt for lying to her, but I didn't want to run the risk that she and Todd Evans may know each other. “So how would I know if an investment advisor is front-running?”

“Well, it would be difficult for you to figure it out on your own. But Jaysen, that's why we have regulatory agencies. Most financial advisors are required to register with the Securities and Exchange Commission. Even small time advisors have to register with California’s securities agency. People in this industry are under intense scrutiny when it comes to their personal finances. They're required to disclose their own personal investment activities. These transactions are then compared against their business investment activities. That makes it easy to detect if an advisor is front-running, and believe me, regulatory agencies do not hesitate to prosecute.”

“So it's illegal?”

“Not only is it illegal, Jaysen, it’s highly unethical. Think about it – people who use financial advisors are assuming that the advisor is going to put his clients' financial interest above that of his own. It's called fiduciary responsibility. If the advisor is making recommendations to his clients based on his own profit or gain, then the trust between the advisor and client is completely broken.

“Not that you asked my opinion, but I think you're worrying about the wrong thing. Financial advisors are under so much scrutiny these days. Honestly, the only way front-running is profitable anymore is if you are an analyst working for a major brokerage firm. You know your brokerage is about ready to publish a report with a buy recommendation for a stock, so you buy the stock before the report is published. People read the report and buy the stock, artificially driving up the price. You sell, making a quick and relatively risk-free profit.”

I was getting frustrated. I didn't understand finances enough, making it difficult to ask Sandy the right questions. I decided to change my approach with Sandy by offering her parameters and then letting her imagination run wild.

“Let me ask you this, Sandy. Let's say I was a financial advisor and I wanted to engage in front-running. But let's say I'm smart enough to know that my own personal finances will be heavily scrutinized and that I would never get away with it. Let's also say that I'm a small time financial advisor with a handful of wealthy clients. The kicker is that my clients are happy with my performance - year after year, I make them money and they stick loyally with me. What could I do that would keep my illegal activities undetected?”

“Why do I get the feeling this really isn't research for your parents,” Sandy asked.

“Okay, maybe it isn't for my parents, but it is very important for me to know.”

Sandy was silent. A little frown formed on her face and I could almost see the wheels turning in her head. Now this was the Sandy I remembered from high school.

Sandy spoke slowly. Her eyes looked up, as though the answers were painted on the ceiling. “I suppose a financial advisor could work with some kind of third-party to make it happen. He could give this third-party the heads up that he is about ready to buy or sell securities for his clients. The third-party executes the trade right before the advisor makes the trade for his clients.”

Sandy scrunched her face and then continued her mind dump, “The advisor could have some common holdings among all clients. Using the criteria you gave me, if he has a limited number of clients, he probably needs all of his clients to buy or sell at the same time in order to move the market. Even then, I'm not convinced that the market would move enough to really make the third-party any money.”

“Keep thinking, Sandy. I promise, this is really important to me,” I encouraged.

She was silent for what felt like an eternity. I sat quietly, allowing Sandy's imagination to run freely. Finally, she spoke. “A possible strategy is for him to use stocks that have a low volume of trading each day, maybe ones that trade over-the-counter or on the NASDAQ exchange. Stocks with heavy trading, like General Electric or Microsoft, will not be impacted by the trades made by small-time financial advisors.

“If the advisor, like you suggested, gives his clients a decent return on their investment, then he's probably using only a small percentage of their portfolio for front-running. The majority of their portfolio is held in solid performing stocks, bonds and mutual funds. With his good track record for making money, the financial advisor could convince all of his clients to invest 5% of their money in high-risk investments, selling them on the hope that these investments will have a big payoff.

“In reality, the advisor consistently loses money on this portion of his clients' investments. But the clients are pleased with the performance of their portfolio as a whole, so they don't notice the poor track record of their high-risk investments.

“It's a bit of a stretch, Jaysen, but it could be done. Keep in mind though, the financial advisor probably isn't making a living off of front-running. It's probably just supplementing his income.”

“Why can't he make a lot of money,” I asked.

“Two reasons. First, the financial advisor and the third-party have to split the proceeds. So right there, he only gets half of the money. And second, the advisor is probably front-running on just a few trades a year. If he tried to do it more regularly, one of his clients would likely grow suspicious.”

Without a background in finance or accounting, it was difficult for me to assimilate all of the information Sandy had just provided me. It was overload to get this much information in one sitting. I knew I needed time to digest what she was saying. My head was beginning to hurt and I was feeling the anxiety of having to drive back on the freeway during rush hour traffic to get back to Long Beach.

I thanked Sandy for her time and promised her I would call her and her husband soon for drinks. She showed me to the front lobby and before I walked out the door, Sandy handed me her business card with her cell phone number written below her office number.

She hugged me and said, “Jaysen, if you need more help researching this matter for your parents, just let me know.”