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Whistleblowers: prepare for millions in awards, as well as hell to pay

Investing in You: Being a whistleblower has rewards, risks

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Sunday, February 22, 2015, 3:01 AM

Have you witnessed something illegal, unethical, or potentially fraudulent where you work?

If you rat out corporate bad behavior, you could win millions. Last year, for example, Edward O’Donnell, a former Countrywide Financial executive, won $58 million from parent company Bank of America in a case stemming from the sale of shoddy mortgages.

His award was part of a record $435 million the U.S. government paid in whistleblower awards, mostly related to health-care fraud and cases involving banks and mortgage companies.

But for whistleblowers, there’s also hell to pay. Prepare for years of loneliness and secrecy, an unhappy spouse, and gigantic legal bills.

Whistleblowers generally “sit on pins and needles every day, wondering, ‘Is someone going to fire me and escort me out the door?’ They’re going to work every day, trying to do the right thing. Many times, they come to us after suffering retaliation. Then they’re fired, shuffled off, demoted. Only then do they file a whistleblower complaint,” says Brian Mahany, of Mahany & Ertl in Milwaukee, who put together the Countrywide/Bank of America case and convinced the Justice Department to take it.

You’ll be pleased to discover that Philadelphia – yes, our own City of Brotherly Love – is home to one of the country’s most active jurisdictions for whistleblower lawsuits.

Why? Federal prosecutors here welcome them.

Zane David Memeger, U.S. attorney for the Eastern District of Pennsylvania, “has lawyers with the experience to move forward,” says Mahany.

Still, 75 percent of the lawsuits “go nowhere, and only a fraction win millions of dollars and headlines,” says Marc Raspanti, a Center City lawyer specializing in whistleblowers.

“Meanwhile, you risk your career, devote a huge block of your life, sometimes five or 10 years, to something most people never see or understand,” says Raspanti, a partner with Pietragallo, Gordon, Alfano, Bosick & Raspanti.

His firm represented Michael Epp, who blew the whistle on fraud by Supreme Foodservice, a contractor to the Department of Defense and coalition troops in Afghanistan from 2005 to 2009.

Supreme paid $389 million in fines under the False Claims Act, a Civil War-era statute. As a result of the suit filed in U.S. District Court in Philadelphia, Epp won $16 million – his portion of the fines.

Of 94 U.S. attorneys’ offices nationwide, about a dozen actively investigate and prosecute on behalf of whistleblowers. The Eastern District was “one of the first to do whistleblower work in 1986. There’s now a very sophisticated federal bench here, and they seek these cases,” Raspanti says.

Witness a suit brought by two Philadelphia doctors against Allergan in 2013.

Ophthalmologists Herbert Nevyas and Anita Nevyas-Wallace claim Allergan paid kickbacks to induce doctors to write prescriptions for more expensive eye-care drugs such as Restasis. Their suit, filed under the qui tam whistleblower provisions of the False Claims Act, is pending here in U.S. District Court.

Another suit, filed against Health Management Associates by Ralph Williams, the company’s former chief financial officer, claims that a kickback scheme went on for more than a decade. Health Management Associates operates Lancaster Regional Medical Center and Heart of Lancaster Regional Medical Center.

When you blow

Several government agencies have whistleblower-award programs, including the Internal Revenue Service and the Securities and Exchange Commission. The biggest payouts come from the Department of Justice. Whistleblowers have collected between 15 percent and 25 percent of any recoveries.

Secrecy is the norm. Under the False Claims Act, the details of 16 suits involving Bank of America and its $17 billion settlement were kept secret and sealed until December.

Now we know that whistleblowers in the case – three former employees and a New Jersey mortgage company, Mortgage Now – shared about $170 million, a new record for the largest award against a single defendant.

Mortgage Now received $8.5 million for exposing the fraud of issuing high-risk mortgages. In addition to O’Donnell, Robert Madsen, a former employee with a property appraisal company owned by Bank of America, won $56 million. Shareef Abdou, a former Countrywide manager, received $48 million.

When the feds step in, a case can move quickly.

“We began talking with the DOJ in 2013, about what they were looking for in these types of cases,” lawyer Mahany recalls of the Countrywide case.

“We got a call from the DOJ on a Sunday night, asking, ‘Remember that guy you told us you had at Bank of America? Can you bring him in and get the complaint filed tomorrow?’ And we did.

“By and large, every one I’ve represented, their primary motivation wasn’t money,” Mahany says.

“Sometimes, you get revenge, as well. That’s a powerful motivator.”

Read more at http://www.philly.com/philly/living/20150222_Investing_in_You__Being_a_whistleblower_has_rewards__risks.html#6UsRAbDTlhjA8IcU.99

Calls, emails, texts from the IRS? Don’t panic..it’s a scam

Monday Money Tip: Getting calls from the IRS? It’s a scam

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Monday, February 16, 2015, 1:07 AM

Tax filers, don’t worry if you get a phone call, a text, or an e-mail from the Internal Revenue Service.

It won’t be from the IRS. It will be a scam artist.

“We always tell our clients . . . the IRS never e-mails and they never text you and they don’t call out of the blue,” said Larry Orr, director in the tax department of CBIZ MHM in Plymouth Meeting.

“These are scams looking to steal your information.”

One client received a phone call supposedly from the IRS “threatening to put him in jail if he didn’t pay right away,” Orr said. “The general public is afraid of the IRS. People are terrified. When they hear that, they think, ‘I have to get them away from me.’ And they shouldn’t be [afraid].”

Delete the e-mail, block the text, hang up the phone and don’t give out your Social Security number.

The IRS even maintains a “dirty dozen” list of scams. Among them are:

Phone scams: Aggressive and threatening phone calls from criminals impersonating IRS agents remain a threat to taxpayers. The IRS has seen a surge of these phone scams in recent months, which threaten police arrest, deportation, tax liens, and license revocation.

Phishing: Also known as fake e-mails or websites looking to steal personal information. The IRS will not send you an e-mail about a bill or refund. Don’t click on an e-mail claiming to be from the IRS. It’s likely a scam to steal your personal information.

Identity theft: Be especially on guard for identity theft around tax time. Criminals love to file fraudulent returns using someone else’s Social Security number. It’s gotten so bad even TurboTax had to halt some state tax filings this season due to rampant fraud.

If you’re a target, call the IRS at 800-829-1040. If you don’t owe taxes or have no reason to believe you do, report the incident to the Treasury Inspector General for Tax Administration (TIGTA) at 800-366-4484 or online (www.tigta.gov).

Also, notify the Federal Trade Commission at http://www.consumer.gov/idtheft or call 877-438-4338.

earvedlund@phillynews.com

215-854-2808

@erinarvedlund

Read more at http://www.philly.com/philly/business/20150216_Monday_Money_Tip__Getting_calls_from_the_IRS__It_s_a_scam.html#QxRrt7XlIXoIdJRm.99

Unemployment numbers a “Big Lie”, according to Gallup CEO

Two views of the U.S. labor market

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Monday, February 9, 2015, 1:08 AM

The chief executive of the Gallup polling service calls the current 5.7 percent unemployment rate a big lie.

Jim Clifton unsettled the financial world last week with a controversial blog post, writing: “If you, a family member, or anyone is unemployed and has subsequently given up on finding a job – if you are so hopelessly out of work that you’ve stopped looking over the past four weeks – the Department of Labor doesn’t count you as unemployed.”

Clifton says the unemployment rate figure is misleading.

“While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news . . . right now, as many as 30 million Americans are either out of work or severely underemployed,” Clifton added.
The U6 figure, which counts the underemployed, may be a better gauge of the labor market’s health. That stands at 11.1 percent, vs. around 17 percent in 2010.

Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, is more optimistic. And if his thesis pans out, the Federal Reserve will hike interest rates this year.

“Our base case is a rate hike in September or December,” says LeBas, who works in Center City.

LeBas’ read on the latest jobs numbers: January’s employment report overcame the headwinds of a slumping oil market, the dollar, and postholiday employment cuts to post a strong jobs showing. Nonfarm payrolls grew by 257,000 for January, much better than the consensus of the economists.

“Before long, the U.S. economy is going to run into a problem that was unimaginable just six months ago: We might run out of people to employ,” LeBas added. He cited the unemployment rate among those with a bachelor’s degree or higher, which fell to 2.8 percent, according to the January report.

“That would have been unthinkable just 12 or 18 months ago. But it also means that wage pressures among skilled workers will almost certainly rise further in the coming year.”

Average hourly earnings bumped up 0.5 percent for January, reversing December’s dip, as the number of hours worked remained unchanged. For a full year, wage growth at that rate would be enough to add $25.2 billion in spending to the U.S. economy.

“We’ve been holding a September 2015 first rate-hike expectation for some time now,” LeBas added, noting that it was far more likely than a 2016 rate hike.

earvedlund@phillynews.com
215-854-2808

Read more at http://www.philly.com/philly/business/20150209_Monday_Money_Tip__Two_views_of_the_U_S__labor_market.html#XCBCtzJ2iPWO8I6I.99

Historically, S&P rebounds an average 23% within a year of radical oil price drop

Oil-price drops may benefit market

The drop in oil prices may have an upside: Historically, the S&P 500’s performance is mixed during a radical oil-price sell-off, but it rebounds an average of 23 percent 12 months later.

So notes Chuck Widger, founder and chairman of Brinker Capital, who generally keeps a low profile despite his $17 billion investment firm in Berwyn and his long performance record.

Widger has a new book out: Personal Benchmark (Wiley, 2014), coauthored with behavioral-finance expert Daniel Crosby.

Widger gleaned insights from Strategas Research data on oil vs. stock prices.

“Oil is driving current stock market volatility. That’s unsettling, because banks give loans to oil drillers, and smaller, highly leveraged drillers are at risk of default. Overall, the economy is in transition, adjusting to lower oil prices. Some segments hurt, and others will prosper.”

Widger found that during dramatic oil-price declines – in 1985-86, 1990-91, 2008-09, 2011, and 2014 – the stock market dropped two out of five times. In 2008-09, the Standard & Poor’s 500 index dropped 35 percent; in 2011, it went down 17 percent.

But the S&P came back “in the double digits every time,” Widger says. By March 1987, the S&P had risen 22 percent, and by September 2012, it had recovered 27 percent.

“The Fed has supported stock markets and not allowed normal disruptive market forces. Active managers do better in volatile markets, and we’re entering a period like that because QE is over and the Fed will likely increase rates.”

Vladimir de Vassal’s quantitative models are rolling over from “negative” on energy to “neutral.”

As director of quantitative research for Glenmede Investment Management, de Vassal and his team in Center City run the $896 million Glenmede Large Cap Growth Fund (GTLLX), and in 2014, it outperformed the S&P by finishing the year with a 20 percent return.

The energy sector “looks cheap. And our model has turned neutral” from negative, he says.

Last year, the fund sold off some energy shares because of poor earnings.

Adds de Vassal: “Industrials are turning positive with cheaper oil and commodity prices, which could benefit their margins assuming economic growth is favorable.”
Read more at http://www.philly.com/philly/business/20150202_Monday_Money_Tip__Oil-price_drops_may_benefit_market.html#lwuFo3KrRYIiYXyh.99

Free.. (yes, free!) help filing your taxes

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Sunday, January 25, 2015, 3:01 AM

You can get free assistance with filing your taxes, though some income and other qualifying limits may apply, depending on the program.

So many readers wrote in after a recent column on crooked tax preparers that we decided to revisit the topic of getting your 2014 income-tax returns together.

This filing season promises to be extra crazy because of a new wrinkle: the Affordable Care Act, also known as Obamacare. Many Americans will be subject to penalties or will have to file new forms to avoid those penalties, accountants and tax-industry experts say.

IRS’s VITA program. Qualifying taxpayers can find free, in-person guidance at many locations through the Internal Revenue Service’s Volunteer Income Tax Assistance program.

Go to http://www.irs.gov/Individuals/Free-Tax-Return-Preparation-for-You-by-Volunteers. Type in your zip code to locate the nearest VITA office, or use the VITA Locator Tool by calling 1-800-906-9887.

VITA volunteers must pass an IRS ethics exam and obtain IRS certification before they can prepare and file returns, says Alice Abreu, James E. Beasley Professor of Law at Temple University. Abreu has volunteered as a VITA preparer, “as have many of my Temple Law students.”

Visit their websites to find locations, which open Jan. 26 for early birds and operate through April 15 for procrastinators.

VITA sites accept no payment and are run by nonprofit organizations. Volunteers spend evenings and weekends providing tax preparation for low-income, and often immigrant, taxpayers.

“They do it out of a sense of duty and desire to render a public service,” Abreu said. “I’m intensely proud that so many Temple students volunteer, and I have even developed a course in which students use their VITA experience as a lens through which to examine the connections between low-income taxpayer policy and the effect of those policies on actual taxpayers, and then make legislative or regulatory recommendations.”

Tax Counseling for the Elderly. This program offers free tax help for all taxpayers, particularly those who are 60 or older and have lower incomes. It specializes in questions about pensions and retirement-related issues unique to seniors.

Its IRS-certified volunteers are often retired individuals associated with nonprofit organizations that receive grants from the IRS. A majority of the TCE sites are operated by the AARP Foundation’s Tax Aide program.

To locate the nearest AARP TCE Tax Aide site, go to http://www.aarp.org/applications/VMISLocator/searchTaxAideLocations.action). Or call AARP at 1-888-227-7669. The system will ask for your zip code to find an office and phone number locally.

Tax prep is available from Feb. 1 to April 15 at 6,500 locations.

MyFreeTaxes. This campaign provides free state and federal tax preparation and filing assistance for families earning $60,000 or less in 2014.

The MyFreeTaxes Partnership offers online and in-person tax preparation, with a list of locations at its website (www.myfreetaxes.com), where free tax forms are also available.

Or you can call toll-free at 1-855-698-9435 to receive assistance.

Sponsored by the Walmart Foundation – in cooperation with Goodwill Industries International, the National Disability Institute, and the United Way – MyFreeTaxes preparation and filing services have helped millions of families.

Just to see what kinds of resources were in this area, I plugged zip code 19107 into the website and found a couple of locations

Read more at http://www.philly.com/philly/entertainment/20150125_Investing_in_You__Where_to_get_free_tax-filing_help.html#Tz0ceEFW5dFKmLMb.99

100WomenInHedgeFunds Hosts “Open Secret” Libor book event Jan. 29th NYC

The LIBOR Scandal: A Discussion with Journalist Erin Arvedlund

January 29, 2015 at 6:30 PM
New York

Considered the most important benchmark interest rate in the world, the London Interbank Offered Rate (“LIBOR”) is calculated through submissions of interest rates by major London banks and is relied upon for the determination of interest paid on almost all lending on a daily basis.

The LIBOR Scandal arose when it was discovered that banks were inflating or deflating their rates to enhance profits. The implications were widespread, affecting countless banks, institutions, individuals, both domestically and across international borders.

In the first book to piece together the event and its ensuing landscape, author Erin Arvedlund traces the Scandal from its beginnings in 2008 to present day as those responsible await punishment. Erin will lead an engaging discussion which will delve into how this manipulation has affected us all and will answer questions and share her unique ideas, research, and discoveries of what happened.

Participants

Erin Arvedlund, The Philadelphia Inquirer
Elise Hubsher, Moderator, Fortress Investment Group

Event Details

Date: January 29, 2015
Time: 6 PM Registration.
We will begin promptly at 6:30 PM; please arrive early. Since it is disruptive to everyone when latecomers enter the session, those arriving after an education session has begun will only be admitted at the discretion of 100WHF and the host. Please note the start time on this invite and plan to arrive early.
Networking will follow.
Host: Fortress Investment Group
Location: 1345 Avenue of the Americas, Boardroom on 46th Floor, New York, NY 10020
RSVP: RSVP Now

If you have any questions about this event, please contact the New York Education committee.

This event is NOT FOR ATTRIBUTION. All 100WHF events are private events and we require that no one reports publicly on any aspect of them.

Admission is free, but there is a $25 charge if you register and do not attend, even if you cancel in advance. No-show proceeds will be donated to 100WHF Foundation – Celebrating Education/Investing in the Next Generation initiative, the 2015 beneficiary of 100WHF’s US philanthropic initiatives.

If you have no-show fees in arrears, the system cannot register you for an event. You can view and pay for any outstanding no-show fees online from your Member Profile

Space is limited. No walk-ins will be permitted.

Biography

Erin Arvedlund, Author & Journalist, The Philadelphia Inquirer
Erin Arvedlund began her career as a reporter at Dow Jones newswires in 1993. In 1996, she moved to Moscow to write about business and emerging markets for The Moscow Times. In 1998, she joined TheStreet.com, one of the first real-time news and stock market web sites. She then moved to Barron’s magazine to cover options, mutual funds and hedge funds from 2000-2003. From late 2003 to 2005 Arvedlund reported on business and politics in the former Soviet Union for The New York Times. She also has Wall Street experience, having worked in the hedge fund industry at two separate firms, Vision Opportunity Capital Management and Sanford C. Bernstein. Arvedlund has a B.A. from Tufts University in International Relations and studied abroad for a semester at Leningrad State University in St. Petersburg. She has also freelanced extensively for print and online magazines such as Fortune, Outside, The Economist Intelligence Unit, Portfolio.com, and Slate.com. She is married and divides her time between New York and Philadelphia.

Elise Hubsher, Managing Director, Fortress Investment Group
Elise Hubsher is a Managing Director in the Capital Formation Group at Fortress Investment Group LLC in New York. Elise is responsible for Global Consultant relationships across Fortress’s alternative investment businesses.

Fortress Investment Group LLC (NYSE: FIG) is a leading, highly diversified global investment management firm. Fortress applies its deep experience and specialized expertise across a range of investment strategies – private equity, credit, liquid markets and traditional asset management – on behalf of over 1,600 institutional and private clients worldwide.

Prior to joining Fortress, Elise held positions as Head of Marketing and IR at D.B. Zwirn & Co. Elise headed the NY office of Northwater Capital, a Fund of Funds, where she was responsible for US Marketing and was a member of the Investment Committee. In addition, Elise acquired extensive experience in marketing and managing teams in equity and fixed income derivatives through her career at JP Morgan and Goldman Sachs.

Elise received her MBA in Finance from the Wharton School of the University of Pennsylvania and received her AB in mathematics with honors from Vassar College. Elise is a member of Phi Beta Kappa.

About Fortress
Fortress Investment Group LLC is a leading, highly diversified global investment firm with approximately $66.0 billion in assets under management as of September 30, 2014. Founded in 1998, Fortress manages assets on behalf of approximately 1,600 institutional clients and private investors worldwide across a range of private equity, credit, liquid hedge funds and traditional asset management strategies. Fortress is publicly traded on the New York Stock Exchange (NYSE:FIG). For more information, please visit http://www.fortress.com.

About 100 Women in Hedge Funds (www.100womeninhedgefunds.org)
100 Women in Hedge Funds is a global, practitioner-driven non-profit organization serving over 13,000 alternative investment management investors and professionals through educational, professional leverage and philanthropic initiatives. Formed in 2001, 100 Women in Hedge Funds has hosted close to 500 industry education events globally, connected more than 250 senior women through Peer Advisory Groups and raised over $36 million for philanthropic causes in the areas of women’s health, education and mentoring.

Give Back
100 Women in Hedge Funds provides a ‘Give Back’ program that enables members to match their resources (time, access, financial) to projects that will help us expand our successful initiatives. Visit 100WHF Give Back today and tell us how you can help.

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Get Connected today! Visit Connect! for details and to sign up.

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Warning signs of crooked tax preparers

Warning signs of crooked tax preparers

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Sunday, January 11, 2015, 3:01 AM

With the onset of the 2015 tax-filing season, here are cautionary tales of a man and a woman whom you don’t want preparing your taxes.

The Department of Justice and the Internal Revenue Service highlight some of the brightest red flags among fraudulent tax preparers.

These two local folks were doozies.

In 2013, “Archie” – full name, Adekunle Adetayo Adeolu – was sentenced to prison and $135,519 in restitution after filing false tax returns. He operated Adeolu & Okojie, a tax-service business in Philadelphia.

Red flag: When a client owed federal taxes, Adeolu would sell that person a name and Social Security number in order to claim a stranger as a dependent, then falsely claim an income tax credit or a child tax credit.

In August 2014, Dawn Chamberlain, of Claymont, Del., was sentenced to 51 months in prison and ordered to pay restitution of $833,160. Between 2009 and 2012, Chamberlain filed more than 450 false individual federal income tax returns for others, claiming more than $730,000 in credits, to which her clients were not entitled.

Red flag: Chamberlain deposited client refunds into her own bank accounts. She returned less than the full amount of the refunds to her clients, and also used client names, dates of birth, and Social Security numbers to file fraudulent New York State Resident income tax returns, requesting refunds of more than $210,000.

How can we avoid these nasties?

Dishonest tax preparers employ a bag of tricks, including inflated or phony expenses; charitable contributions; medical and dental expenses, and false dependents.

Many people accused of tax evasion just make mistakes. These were criminals.

Pro preparers

If you can afford one, there are different types of return preparers. Visit the IRS website to learn more (IRS.gov/chooseataxpro).

Avoid tax return preparers who claim or advertise that they obtain larger refunds than other preparers.

Avoid preparers who base their fee on a percentage of the amount of your refund. Check fees upfront.

A reputable tax professional signs and enters a preparer tax identification number (PTIN) on your return and provides you with a copy for your records.

Anyone with a valid 2015 PTIN is authorized to prepare federal tax returns.

Tax return preparers, however, have differing levels of skills, education and expertise.

Consider whether his or her firm will be around to answer questions about your tax return, months, even years, after filing.

Never sign a blank tax return.

Ask for referrals. Do you know anyone who has used this tax professional? Were they satisfied with the service they received?

Does your tax preparer have a professional credential (enrolled agent, certified public accountant, or attorney), belong to a professional organization, or attend continuing education classes? For instance, tax law changes, such as the Affordable Care Act provisions, will be maddening.

Always make sure your refund is sent to you directly or deposited into your bank account. Your tax preparer should not deposit your refund into his or her bank account.

Make sure your preparer offers IRS e-filing (electronic filing). Ask that your return be submitted to the IRS electronically. Any tax professional who gets paid to prepare and file more than 10 returns generally must file electronically.

Records and receipts: Good preparers will ask to see these. They will ask questions to determine your income, deductions, tax credits and life events. Did you get married? Did a close family member pass away or did you experience financial difficulty last year?

Don’t rely on a preparer who is willing to file your return just using your last pay stub.

Paid preparers must sign returns and include their PTIN, as required by law. The preparer must also give you a copy of the return.

File for free

Not everyone can afford to pay for tax prep. Readers asked us to reprise free (yes, free) tax filing resources.

The Free File Alliance (www.IRS.gov/freefile) is a nonprofit coalition of tax software companies partnered with the IRS to help millions of Americans prepare and e-file their federal tax returns for free – if you have 2014 adjusted gross income of $60,000 or less.

Although not available until Jan. 16, Free File Alliance member companies provide more than a dozen brand-name tax software options at no cost. The IRS begins accepting tax returns electronically on Jan. 20. Paper tax returns begin processing at the same time.

Also TaxACT.com offers free federal filing, including all e-fileable IRS forms.

Investing in You: IRA TAX PROS

National organizations that can help you find a tax professional:

American Institute of Certified Public Accountants (AICPA)

American Association of Attorney-Certified Public Accountants (AAA-CPA)

National Association of Enrolled Agents (NAEA)

National Association of Tax Professionals (NATP)

National Conference of CPA Practitioners (NCCPAP)

National Society of Accountants (NSA)

National Society of Tax Professionals (NSTP)

SOURCE: IRS.gov
Read more at http://www.philly.com/philly/entertainment/20150111_Investing_in_You__Warning_signs_of_crooked_tax_preparers.html#tOwki54l1pI6loyf.99

Avoid cyber-security funds like HACK, marketing ploys, nothing else

Stay away from cyber security funds

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ERIN E. ARVEDLUND, INQUIRER STAFF WRITER

Hackers make good headlines, but they may not make for good investments.

After Sony’s network was hacked recently, a new exchange-traded fund, PureFunds ISE Cyber Security ETF (symbol: HACK), saw its shares start to rise. The fund only launched in November and has traded from about $25 a share to $28 in recent days.

Funds like this capitalize on headlines about volatile sectors of the stock market. Like episodes of Law & Order, they have a ripped-from-the-headlines pitch that investors find intriguing.

But that doesn’t mean such a fund is good for your pocketbook.

According to its prospectus, HACK seeks to replicate the performance of the ISE Cyber Security Index, which holds shares of 30 companies that make a business protecting cyber infrastructure. The fund’s annual expense ratio is 0.75 percent, high for a vehicle whose holdings include companies that have not even made a profit yet.
“Some of these companies have lofty and perhaps hope-filled valuations to grow into, and some don’t even have earnings at this point. It’s an area that is a magnet for discussion, but maybe shouldn’t be a magnet for capital just yet,” says Thomas J. Raymond Jr., vice president in asset management for Abbot Downing, a division of Wells Fargo, in Center City.

FireEye (FEYE), one of the new HACK fund’s top 10 holdings, has only recorded losses. Another holding, Fortinet (FTNT), trades at a heart-stopping price-to-earnings ratio of 173, compared with competitor Cisco Systems’ (CSCO) 19 P/E ratio.

PureFunds, which launched HACK, doesn’t have the greatest track record either. Other specialty funds it has floated out in recent years have liquidated, including MSXX and PureFunds ISE Diamond/Gemstone ETF (GEMS). GEMS was an exchange-traded fund tracking the global diamond/gemstone industry.

How do these headline-inspired funds come into being? They are “white label” ETFs, for which documents are filed with regulators using another firm to speed up the process of coming to market.

In this case, PureFunds, an independent ETF research house based in Mendham, N.J., put together HACK with Exchange Traded Managers Group, a private-label issuer firm in Summit, N.J., run by Sam Masucci, the chief executive officer.

Masucci did not return phone calls to his offices asking for comment about what happened to the now-liquidated funds or about the new HACK fund.

As of Oct. 30, HACK’s index had 30 constituents, six of which were foreign companies; three largest stocks were VASCO Data Security International Inc. (8.57 percent of the fund), Imperva Inc. (6.08 percent), and Palo Alto Networks Inc. (5.49 percent).

Avoid investing because of headlines. If you want exposure to cybersecurity, you can buy the individual companies in the index. Don’t pay for ETFs that may not be around in a few years.

earvedlund@phillynews.com
215-854-2808

Read more at http://www.philly.com/philly/business/20150105_Monday_Money_Tip__Stay_away_from_cyber_security_funds.html#OfKMCWXZ6MsBDA8o.99

Student debt ‘consolidators’? You can do it yourself — for free

Investing in You: Beware offers of student debt ‘help’

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ERIN E. ARVEDLUND, INQUIRER STAFF WRITER
POSTED: Sunday, December 28, 2014

What’s another name for student debt consolidator? A new low in scam artists. So here’s how not to become a target of “debt relief” companies.

Many 2014 college graduates are receiving their first loan bills. Student loans total $1.2 trillion nationally, and about seven million students have defaulted.

You don’t need to pay anyone to get help with, or to restructure, your federal student loans – period. (Private loans are another matter entirely). Do it yourself for free.

“We have a client here who was solicited by a company to pay an up-front fee of $700 for help in consolidating her student loans. However, she has all federal loans, so she could consolidate them for free,” said Shawn Needham, of Clarifi, a nonprofit financial counseling agency with branches in Center City and the suburbs.

Law enforcement, including state attorneys general and the Consumer Financial Protection Bureau, are going after student debt-relief companies, citing rising complaints and aggressive advertising, explained Mark Kantrowitz, founder of Edvisors.com.

“Some are even advertising on late-night TV, not just on the Web,” he said.

The only phone number you need is the U.S. Department of Education’s student loan center: 1-800-4FEDAID (1-800-433-3243).

The Department of Education issues a vague warning on its Website about debt relief (https://studentaid.ed.gov), but it’s not prominent enough.

The warning appears under “Loan Consolidation” at the bottom of the website, under “Repay Your Loans” and reads:

“There is no application fee to consolidate your federal student loans into a Direct Consolidation Loan. If you are contacted by someone offering to consolidate your loans for a fee, you are not dealing with the U.S. Department of Education’s loan consolidation servicer.”

Uncle Sam: Take a hint from Captain Obvious, with a red-letter warning on the home page.

Alternative repayment programs, such as Income-Based Repayment or Pay as You Earn, are available at no cost to federal student-loan borrowers. Visit ConsumerFinance.gov for more information.

Or to apply for a Direct Consolidation Loan through the Department of Education, visit its Direct Consolidation Loans website (www.loanconsolidation.ed.gov) or call 1-800-557-7392.

This website changed drastically in May, so be prepared to spend some time online.

Earlier this month, the Consumer Financial Protection Bureau highlighted two student “debt-relief” scams, which charge high fees for free federal loan-repayment benefits. The scams “illegally tricked borrowers into paying up-front fees for federal loan benefits,” the agency said in a Dec. 11 statement.

The CFPB, in a joint filing with Florida’s attorney general, shut down College Education Services and separately filed suit against Student Loan Processing.US.

“Student loans are already a significant debt for many Americans. College Education Services and Student Loan Processing.US added to that hardship by taking advantage of troubled borrowers and failing to describe their services honestly,” said CFPB director Richard Cordray.

“When scam artists prey on student-loan borrowers, we will take action to halt their illegal activity.”

College Education Services, its owner, Marcia Elena Vargas, and advisor and employee, Frank Liz, were based in Tampa, and operated websites including CollegeDefaultedStudentLoan.com and HelpStudentLoanDefault.com. They reaped millions of dollars in advance fees from consumers, the agency said.

Federal law requires that at least one debt be renegotiated, settled, or reduced before a fee can be collected. College Education Services charged consumers between $195 and $2,500 up front; the average was about $500.

College Education Services promised lower monthly payments for consumers. One advertisement said, “Cut Your Student Loan Monthly Payment Up to 50% – Save Today!” Instead, sometimes the monthly payments increased. The CFPB is seeking to ban College Education Services from the industry.

The CFPB alleges that since 2011, Student Loan Processing.US and its owner, James Krause, marketed services to assist student borrowers applying for Department of Education federal student loan repayment programs.

The company operates websites under the names StudentLoanProcessing.us, StudentLoanProcessing.org, and slpus.org.

Student Loan Processing.US is a fictitious business name for Irvine Web Works Inc., headquartered in Laguna Nigel, Calif., with an office in Dallas.

The bureau accuses the company and Krause of falsely representing an affiliation with the U.S. Department of Education and charging illegal advance fees – 1 percent of the consumer’s federal student loan balance or $250, whichever was higher.

The company also deceived borrowers about the costs and terms. Student Loan Processing.US failed to disclose that its “monthly service fee” would continue until the consumer’s federal student loans were paid in full or discharged, which could take decades.

DON’T BE A VICTIM

Warning signs that a company offering student loan debt relief may be a scam:

Pressure to pay high up-front fees

Avoid companies that require payment before doing anything, especially if they try to get a credit card number or bank account information, or require that you sign a contract.

Requests for a Federal Student Aid PIN

Be cautious of companies that ask for your Federal Student Aid PIN. This unique ID is the equivalent of your signature, and giving it away is giving a company the power to perform actions on your student loan. Honest companies will work with you to come up with a plan without the PIN.

If you are a borrower who has run into trouble with companies offering debt relief services when repaying student loans, visit http://www.consumerfinance.gov/complaint.

More information is available at http://www.consumerfinance.gov/students.

earvedlund@phillynews.com

215-854-2808

Read more at http://www.philly.com/philly/education/20141228_Investing_in_You__Beware_offers_of_student_debt__help_.html#fc8jxqPmK79FqwSi.99

Each 1-cent drop at the gas pump = $1.4B in extra income. what’s not to love?

Monday Money Tip: Oil’s fall: Great for consumers, or the germ of ‘general contagion’?

Erin E. Arvedlund, Inquirer Staff Writer
POSTED: Monday, December 22, 2014, 1:08 AM

Ain’t it grand that oil prices are dropping? Yes and no.

For consumers, yes, the 40 percent drop, down to $55 or so per barrel, amounts to a massive income boost. Each penny drop in gas prices at the pump equals $1.4 billion a year in extra disposable income, according to Bill Dunkelberg, professor of economics at Temple University.

The best part, he says, is that American dollars aren’t leaving the country like they did in 2008, when $150-per-barrel oil enriched OPEC nations.

“Now we’re going to start collecting those oil revenues here when prices rebound,” he adds. “Money spent here stays here, as the U.S. is now one of the larger oil producers in the world.”

The marginal price of oil is too low, he estimates, as it costs about $65 a barrel for anyone producing oil.
“Demand will come back eventually. In the short run, this is great for consumers and should help the economy move along,” Dunkelberg adds. It has also likely prompted the Federal Reserve to keep interest rates lower for longer.

Other investment implications from the big move in oil prices?

Howard Marks of Oaktree Capital outlined some in a recent letter to investors (available at http://goo.gl/MUc547). He suggests:

With the cost of driving now lower, people might buy cars, benefiting auto companies.

Likewise, increased travel stimulates airlines to order more planes, a plus for aerospace companies. But there’s less incentive to replace older planes with fuel-efficient ones.

Reduced drilling leads oil-service companies to bid lower for business. That improves the economics of drilling, helping those oil and gas drilling companies.

Banks and other lenders may be hurt by their holdings of bad loans if things get ugly enough for their borrowers among oil and oil-service companies.

Marks cites views among Oaktree colleagues – though not by name – with one of them noting that energy is a significant part of the high-yield bond market. In fact, it is the largest sector today, bigger than media and telecom, the market’s traditional heavyweight. Energy is highly capital-intensive, and the high-yield bond market has been the easiest place to raise capital.

The “knock-on” effects of a precipitous fall in bond prices are potentially substantial: outflows of capital, and mutual fund and ETF selling, Marks and his colleagues say.

He quotes one colleague’s analysis: “An imperfect analogy might be instructive: capital market conditions for energy-related assets today are not unlike what we saw in the telecom sector in 2002.

“As in telecom, you’ve had the confluence of really cheap financing, innovative technology, and prices for the product that were quite stable for a good while. These conditions resulted in the creation of an oversupply of capacity in oil, leading to a downdraft. It’s historically unprecedented for the energy sector to witness this type of market downturn while the rest of the economy is operating normally. Like in 2002, we could see a scenario where the effects of this sector dislocation spread wider in a general contagion.”

earvedlund@phillynews.com
215-854-2808

@erinarvedlund

Erin E. Arvedlund
Inquirer Staff Writer
Twitter | Email

Read more at http://www.philly.com/philly/business/20141222_Monday_Money_Tip__Oil_s_fall__Great_for_consumers__or_the_germ_of__general_contagion__.html#CjQVfVi67zFWmVcD.99

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