PUBLIC SUBMISSION

As of: 5/27/15 8:59 AM

Received: May 23, 2015

Status: Pending_Post

Tracking No. 1jz-8j0o-3qor

Comments Due: July 06, 2015

Submission Type: API

Docket: EBSA-2010-0050

Definition of the Term ‘‘Fiduciary’’; Conflict of Interest Rule—Retirement Investment Advice; 

Notice of proposed rulemaking and withdrawal of previous proposed rule.

Comment On: EBSA-2010-0050-0204

Definition of the Term Fiduciary; Conflict of Interest Rule-Retirement Investment Advice

Document: EBSA-2010-0050-DRAFT-0295

Comment on FR Doc # 2015-08831

Submitter Information

Name: August Gerecke

Address: 

333 S Villanova Dr

Claremont, CA, 91711-5338

Email: gerecke@surfside.net

Phone: 909-626-2858

Organization: retired

General Comment

The carve-outs contained in the proposed definition of fiduciary (80 FR 21927) appear capable 

of being interpreted to give a pass to an organization which provides information to or 

withholds information from the person who advises the retirement investor. Here are two 

examples from my experience as a Registered Representative of a broker-dealer, advising nonexpert investors, some of them with self-directed IRAs.

My small broker-dealer contracted with a larger broker-dealer for stock analysis. The larger 

firm provided a weekly "Focus List". I was orally instructed that I was allowed to recommend 

only the stocks on this list, because the firm had analysis capabilities which I did not have. I 

was not specifically ordered to recommend them. After several months of telephone 

communication with someone at the larger firm's HQ, he and I became phone friends. He then 

told me that there was a "morning email" sent to selected people, containing a summary of the 

analysis teams' expectations for the stocks they covered. He offered to put me on the 

distribution list, and I gladly accepted. I immediately noticed that stocks with the greatest 

expectations were not on the Focus List, but stocks with low but not negative expectations 

were. I compared the Focus List and the emails over a period of time. I noticed that, when a 

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stock got close to its expected price, it appeared on the Focus List. I deduced that insiders were 

buying the best stocks and were putting them on the Focus List when they wanted to dump 

them, so that unsuspecting Representatives would recommend them to clients, and clients 

would buy them through the firm, thereby avoiding the necessity for the insiders to sell through 

the exchanges, which would have driven down the prices they would obtain. Both I and my 

clients were to be the suckers.

In the 1990's, a large telephone company offered contracts in which the investor would own a 

pay phone and the phone company would maintain it. The prospectus supplied data showing 

that pay phones were very profitable. The prospectus also claimed that the phone company 

needed the cash to build out its fiber optic network. Since fiber networks were being built at that 

time, this was plausible. However, the prospectus did not mention something relevant which I 

learned much later: that the cell phone had been invented, had been test-marketed somewhere 

(Hong Kong, I think) with great success, and had almost eliminated the use of pay phones. The 

phone company was dumping pay phones on unsuspecting investors, using unsuspecting 

Representatives. Not only would the investor have a worthless asset, he would be stuck with a 

long-term contract paying the phone company to maintain it. A double whammy!

Under your proposed regulation, the Registered Representative would be a fiduciary. The 

broker-dealers and the phone company might be able to wiggle out by finding a court 

sympathetic to their interpretation of your carve-outs.

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