We don't know whether
is innocent or guilty. This is, after all, America, and while we know that the feds don't pick names to go after out of the phonebook, we have to wait to see if this charismatic money manager, seen so often on TV, did violate the law, as the feds told us
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But that doesn't mean we can't learn something from the process that Bond is going through. What exactly is it that the feds are charging and can you prevent it from happening to you?
First, let's accept the fact that if someone scams you, whether you are a sophisticated institution or a befuddled individual, it is very hard to detect. There can be complicated arrangements that can conceal hardcore criminal activity.
But you should ask your manager certain questions from the get-go. How does he handle his soft-dollar arrangements, meaning, does he -- and not you -- take the rebate check that brokerages give money managers for tools that are paid for by the broker for the manager?
Let's use this example. You are a money manager. Let's say that
offered independent stock research that you could buy by the piece, by subscription. Let's say it cost $200 per piece, or $1,000 a year for all pieces. As a money manager, I could sign up for that service and send the bill to a brokerage house. That's what "soft dollaring" is about.
Now, some firms get carried away and they soft-dollar everything -- cars, houses, apartments. That's wrong. But people do it. If your money manager is doing that, call him out on it. He shouldn't be abusing the system like that. Others get a check back from the broker that is meant for the provider of the research and they pocket the check. (Something similar may have been alleged in this Bond case.)
That's wrong, too.
You can protect yourself by asking about these arrangements. It is not embarrassing to do so. It is costing you performance. So today, after this Bond thing, pick up the phone and ask if any of this stuff is happening. If your manager doesn't know, ask to speak to the outside accountant who handles the books for your manager. We all have one. If that person won't be made available at your request, think, what is this firm hiding?
Maybe they are hiding something that is lining their pockets and short-changing yours.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long TheStreet.com Inc., and Cramer was long TheStreet.com Inc. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at firstname.lastname@example.org.