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Friday, November 24, 2017

A lawyer for former national security adviser Michael Flynn informed an attorney for President Trump this week that he can no longer discuss the special counsel's investigation into Russian interference in the 2016 presidential election, a sign that Flynn may be preparing to cooperate in the probe, people familiar with the investigation said. The call from Flynn lawyer Robert Kelner to Trump attorney John Dowd came Wednesday evening and is a potentially ominous sign for Trump and his close associates. Before this week, Kelner had been communicating with lawyers for Trump. The split suggests that Flynn, who has been a top target of special counsel Robert S. Mueller III and his team, may be looking to share information with the prosecutor and his team.


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Russia has a bunch of nuclear weapons pointed at us and a sociopathic, criminal, evil, imperialist leader, why aren't we compelled to be "doing something" there?

The fact that North Korea or Iran have nuclear weapons does not necessitate us doing anything hostile about it unless we choose to be obstinate and the aggressor. Neither country has the wherewithal to engage us in a full nuclear exchange and any proxy terrorist attack that can remotely be traced back to their nuclear materials will be met just as if they launched from their capitals. The only difference between our nuclear dynamic with Russia vs these "rogue" nations is that these relationships are almost totally asymmetrical in our favor. Their pursuit of nuclear weapons is for deterrenc, the same as ours.

Even if they have aggressive intent, which makes absolutely zero strategic sense, we can not quarantine physics. Nations with education and technology are going to build nuclear energy and weapons under their sovereign authority to discover and build what they please. Our best option is to be a benevolent neighbor rather than an overbearing hegemom and maintain detente minimizing our interference in their affairs. Kind of the point of them wanting nuclear weapons is so that they have the ability to keep us our military off of their soil just as Russia has done seemingly successfully. They are following the established model for keeping us at bay.

We should probably follow the established model for not provoking a suicidal exchange of hostilities.

Dave, nothing above is cut and Pase. I have had a long career in financial services. I have worked extensively with a variety of private placements in my own investments and practice. It is my opinion that treating the accreditation as a "pass through" property of the DB Plan is a regulatory lapse. 401k's DO NOT pass through accreditation this way. I know why SEC treats them differently, but I strongly disagree with the rationale. Pension participants are by and large NOT sophisticated enough or wealthy enough to be accredited on their own. In my opinion, the boards should be limited in their investment selection to products which the individual participants would find suitable. That's just my opinion.

No where did I absolve the board's responsibility. I noted specifically that the investors are rightly suing the board. We had no disagreement on that point so there wasn't much more to say there.

They are ALSO suing specific fund managers. I added that there could be cause for a claim against the funds as well, potentially due to sales practices.

I've have personally been in meetings where such failures and misrepresentations from reputable and established firms have occurred and I have had to correct and call out improper language to protect my clients. Sometimes in these meetings especially where the diligence consultants already know all the fund managers they can talk right over the heads of the clients and or oversimplify things to the point where deceptive or misrepresentative statements get made. That consulting firm mentioned here is a big part of this failure in my opinion as it seems the board knew what they didn't know and hired a consultant to protect them. If they were misled, the consultant firm failed them as well.

Even without malice, these failures happens, even with good people. People get comfortable and casual and they speak in plain language that sometimes doesn't conform to the written disclosure. Those verbal statements can become cause for liability despite what was in the written disclosure as a deceptive/abusice sales practice failure.

So Dave is sort of correct in that investing is a "buyer beware" proposition and hedge fund investing in particular places the onus of diligence on the investor, not on investment manager disclosures, but there are a couple of mitigating/complications factors here.

First, the issue of "accredited investors" The pension fund board is likely the only accredited investor here. The total assets in the plan they oversee is the qualifying measure allowing for an assumption of sophistication and resources Necessary to evaluate more exotic Investments. The problem here is that the pension participants almost certainly do not meet the qualifications of accredited investors individually. Treating accreditation as a "pass through" property of investor suitability is a gross lapse in the regulatory structure.

Second, the pension participants here ARE suing the pension board. If the board failed to do the diligence Dave correctly states is their responsibility then they have liability.

The participants here are also suing several of the hedge fund managers. The question of liability for the hedge fund managers could absolutely come down to the sales practices and representations made to the pension board. If the fund managers misrepresented the investments in question, if they described guarantees that didn't exists or promised returns that were not met, they don't get to hide behind "do your own diligence." Misrepresentation and abusive sales practices are still punishable even in the accredited investor space.

The suit apparently also cites the fees charged by the hedge funds and while fees were almost certainly disclosed in the offering, if return guarantees were made in the sales process that would have reduced the impact of those fees if met, then the fees themselves if not usual and customary then the fees themselves could potentially constitute a compounding deceptive practice and abuse.

On the state of pension funds in general, low interest rates have certainly hamstrung pension funds abilities to deliver relatively "safe" returns via long term bonds to meet their actuarial obligations. The lack of viable fixed income
Instruments available to meet Defined Benefit obligations has forced pension funds to seek other sources of return. Sometimes by holding significantly more traditional equities than they would have in a normal interest rate environment, but often by seeking out hedge funds that provide downside protection built around traditional and private equity portfolios. These protections are often the "Black box" in question and not necessarily disclosed or transparent at any meaningful level. They certainly don't disclose their risk management algorithms
In offering memorandums. If hedge fund managers misrepresent what their particular "black box" does under varied market conditions the investor, accredited or not does not have the resources to evaluate the risk return profile of the investment.

Lastly, participant longevity is the single largest contributor to unfounded pension liabilities, not mismanagement. You people live too goddamn long and generating the returns necessary to provide 30 years of retirement income requires significantly more risk than can be realistically guaranteed by any investment strategy. Pension fund boards are out in the position of needing magic beans to solve this problem. Hedge fund managers are selling these beans, some are doing so deceptively and misrepresenting what they sell.

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