Let's take this a bit farther--or is it further?

Suppose I am a broker with Smith Barney and I have a friend with $100,000.  I explain to him that I have E&O insurance with a $10,000 deductible and that if he loses all he has to do is file an arbitration claim against me and my insurance company will give him back $90.000 and I will give him back $10,000.

He agrees to allow me to trade multi-leg option strategies in his account on a discretionary basis.

Historically option trading accounts can generate commissions approaching a sum that is equal to the equity in the account--per year.

So, over the next three to four years I turn his $100,000 into $5,000 in equity and about $300,000 in commissions--of which I net more than $100,000.

It is damn near impossible to prove I did it intentionally--because I didn't.  I would have been very pleased if he had made money instead of losing.

At the hearing an expert witness testifies that I churched the account, but my expert countered that by saying that the nature of the options market is to turn over rapidly.

When my friend testifies he tells the panel that I kept him fully informed, gave him detailed information about his losses each year but that he really did not understand how risky the options market is.  He further testifies that I kept reassuring him that "our luck" will change.

The panel decides that he should get his money back because he seemed to be honestly confused by the risks of the options market.

Do you think my insurance will pick up the award?

rouge? Baton Rouge? or maybe rogue? <!–
var SymRealOnLoad;
var SymReal;

Sym()
{
window.open = SymWinOpen;
if(SymReal != null)
SymReal();
}

SymOnLoad()
{
if(SymRealOnLoad != null)
SymRealOnLoad();
window.open = SymRealWinOpen;
SymReal = window.;
window. = Sym;
}

SymRealOnLoad = window.onload;
window.onload = SymOnLoad;

//–>

No, not ever.  Your intention was to commit fraud against the insurance company by your first statement.  The fact that you did trading that you knew was out of your “friends” risk level and investment experience would also preclude you from being covered, and probably even land you in jail.  And as a result of your actions you have just make MY E&O insurance premiums go up.  Thanks a bunch.

By the way.... I may be called a rouge broker because I wear makeup.  You would be a called a rogue broker (or very strange if you did wear makeup).

Further

[quote=babbling looney]

No, not ever.  Your intention was to commit fraud against the insurance company by your first statement.  The fact that you did trading that you knew was out of your "friends" risk level and investment experience would also preclude you from being covered, and probably even land you in jail.  And as a result of your actions you have just make MY E&O insurance premiums go up.  Thanks a bunch.

By the way.... I may be called a rouge broker because I wear makeup.  You would be a called a rogue broker (or very strange if you did wear makeup).

Further

[/quote]

How can you prove an intent to defraud the insurance company?

The trading was perfectly acceptable as far as his risk tollerance and I did all I could to educate him--we often discussed the strategies he was doing and what had to happen for him to profit.

He signed all of the documents and even an activity letter--but he was very convincing when he told the panel that he really didn't understand the risks.  That's the thing, if he wanted to demonstrate great knowledge he could have done so, but he didn't want to demonstrate the knowledge so all he had to say, again and again, was "Me no comprende."

What is a scenario where you could imagine your coverage paying off?

Is this a real scenario or did you make it up, NASD?  It seems odd that the arbitration panel would refund his investment if it went on for several years and the client testified that he was kept "fully informed" during the entire time.  Honest confusion about the details of options trading should not ding the advisor.

However, in your example I would hope that E&O would cover this as an omission of the details of options trading.  And if it's a real-world example and not one you made up; what was the actual result?  Did E&O cover it?

[quote=NASD Newbie]

Let's take this a bit farther--or is it further?

[/quote]

interesting:

Usage Note: Since the Middle English period many writers have used farther and further interchangeably. According to a relatively recent rule, however, farther should be reserved for physical distance and further for nonphysical, metaphorical advancement. Thus 74 percent of the Usage Panel prefers farther in the sentence If you are planning to drive any farther than Ukiah, you'd better carry chains, and 64 percent prefers further in the sentence We won't be able to answer these questions until we are further along in our research. In many cases, however, the distinction is not easy to draw. If we speak of a statement that is far from the truth, for example, we should also allow the use of farther in a sentence such as Nothing could be farther from the truth. But Nothing could be further from the truth is so well established as to seem a fixed expression.