The Derivative Project
Americans coming together to build sustainable value.

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The Derivative Project
is bringing Americans  together, online,  since it is apparent the strong lobbying organizations on Wall Street are preventing the financial reforms necessary to return us to a dynamic, free-market economy.

The strong lobbying organizations on Wall Street have made a mockery of our judicial system, given that the Investment Advisors Act of 1940 was passed in 1940 and individuals cannot enforce breaches of this act in court, the SEC does not enforce "small" but material breaches of this act for the retail retirement investors and FINRA forces a retail retirement investor into mandatory arbitration, under a Wrap Account, where a retail retirement investor pays a fee for investment advice, but FINRA has no authority from Congress to enforce breaches of the Investment Advisors Act of 1940.

A Summary of The Derivative Project

The Derivative Project is a retail investor advocacy organization created in March 2008 to initially:

1.). Educate retail investors concerning the potential collapse of the equity markets, as a result of unchecked counter-party credit risk with OTC derivatives. The objective was to protect the gains in the equity markets from the potential collapse of the financial system and it's resulting negative impact on the equity markets.

2.). Educate retail investors concerning misleading perceptions of the relative safety of money market funds, due to substantial mission creep of these funds and "buried" risks in these funds from losses in SIV's, for example and asset-backed commercial paper conduits.

3.). Work with Congress and potential Congressional candidates on education of derivative reforms and increased investor protection and ensure those SEC registered investment advisors have the experience, education and training to judge what is a safe product for a retail retirement account.  Brokers are salespeople and have no requirements for specialized training and should not be permitted to provide investment advice to retail retirement accounts for a fee.

Today, The Derivative Project is focused on ongoing education and awareness for the retail investor of the risks posed by unchecked counter-party credit risk, naked credit default swaps, use of derivatives by mutual funds and status of regulatory implementation of Dodd-Frank as to clearings of OTC derivatives, systemic risk and ongoing convergence of cash and future markets to ensure integrity of futures/forward markets for the end user. 

In addition, The Derivative Project supports the ban of mandatory arbitration for all retail retirement accounts and a right of private action.  Further The Derivative Project does not support that brokers are fiduciaries under Wrap Accounts.  Wrap accounts are confusing to investors and should be banned by the SEC.

Principal Focus of The Derivative Project, post 2008 Financial Crisis:

Ensure that the average retirement investor, who must invest retirement savings with banks and brokerages:

(1) Is allowed comparable access to capital markets (equity, debt and
derivatives) as any institutional investor. This is not currently the case and
The Derivative Project would outline the issues for Congress, since it is
impeding our economic recovery.

(2) Is allowed a private right of action to enforce a breach of the Investment Advisors Act of 1940 and is not bound by mandatory arbitration.

(3) Has access to properly trained SEC registered investment advisors, with clear transparency and enforcement by the SEC on the Investment Advisors Act of 1940 fiduciary standard.

Lack of trained SEC registered investment advisors is part of the reason retirement investors lost over $2 trillion dollars in the2008 financial crisis.

(4) Has access to transparent education on investment basics and role of brokers and investment advisors, both online at the SEC and in the public schools to make informed investment choices for their asset management.

(5) Has access to a retirement investment expense structure that is enforced by the SEC, since every additional incremental gain in profit margin goes to
the financial services industry. The U.S. GDP has become excessively
dependent in the past 25 years on revenue from financial Services (now
approaching 30% of GDP.)

Revenues from financial services do not build a sustainable foundation
for U.S. economic growth. This is a bi-partisan concern, to diversity the U.S. economy from a dependence on non-productive financial services revenues.

(6) The Derivative Project advocates the SEC streamline its regulatory framework to minimize taxpayer’s costs and to prevent future crisis by eliminating the silo's that caused the 2008 financial crisis and the largest Ponzi scheme in the history of the U.S.

To do so, the SEC needs practitioners working side-by-side with SEC attorneys, who are not trained in the day-to-day mechanics of the capital markets that are at the core of each and every crisis.

The Derivative Project 2012 Goals

Re-establish the original Congressional Intent of the Investment Advisers Act of 1940 by enforcing a clear dichotomy between salesperson and SEC registered investment adviser, by:
  • the immediate ban of dually registered Wrap Accounts
  • Establishment of SEC determined professional standards for any SEC registered investment adviser who provides advice to any type of retirement account
  • Elimination of all conflicts regarding investment advice to any retirement account, as disclosures are not sufficient. 

The Derivative Project 2011 Goals

Our first objective is to have the SEC hire a SEC Advocate as mandated by Dodd-Frank, to serve as a link between Congress and the SEC/FINRA to ensure there is a balance of power between the powerful Wall Street lobbyists and the small retail retirement investor.  Retail retirement accounts lost over $2 trillion in the 2008-2009 crisis.  This was all avoidable and Congress and the SEC must take immediate action by appointing a professional who can speak to the reasons for these loses, how they could have been prevented and what actions must be taken to prevent it from reoccurring.  

To ensure neutrality, the SEC advocate must never have worked at FINRA or the SEC and must have had direct experience in OTC derivatives hedging, counter party credit risk at a major commercial bank and have several years experience as a SEC registered investment advisor and NASD registered broker.

Our retirement dollars were lost, in many instances due to lack of Wall Street fiduciaries not operating in our best interest.  There is no current enforcement mechanism to stop this rogue Wall Street behavior, neither at the institutional nor the retail level.  We will work to change that.

The Dodd-Frank legislation has the American taxpayer spending millions of hard earned dollars to babysit the side-bets of five major derivative banks.  We will work to change that.

Dollars are being wasted researching "a fiduciary standard" for brokers, when Wall Street knows full well there is no regulatory mechanism to enforce this standard.

What deters criminal behavior and recidivism?  Enforcement of existing laws.  Congress has a long history of passing securities laws that are not enforceable due to ambiguity.  Wall Street has a long history of "regulatory capture."  We seek to change that.

Time Line of The Derivative Project

March 2008

Prior to the collapse of Bear Stearns on March 16, 2008, The Derivative Project launched the first caucus at a State Convention to focus on evolving issue of the collapse of the financial system and what protections are needed for retail retirement accounts.

The Derivative Project warned a major money management firm to move retail retirement investor assets to cash or FDIC insured CDs for five years at 5 % to protect their assets from a potential collapse of the equity markets.  This money manager refused to investigate The Derivative Project's concerns.  The SEC refuses to investigate this breach of fiduciary duty by this major money management firm.

Summer 2008

The Derivative Project worked with a Congressional Candidate to raise awareness of the need for Congress to take immediate action to unwind the counter party credit risk at AIG to protect a collapse in the financial system.

October 2008

The Derivative Project meets House Chair Nancy Pelois at a fundraiser for a Congressional Candidate in Minneapolis and asks for immediate action on controlling the systemic abuse with credit default swaps.  Chair Pelosi refers The Derivative Project to Congressman Collin Peterson, Chair, House Agriculture Committee, who is spearheading the efforts to regulate OTC derivatives in Congress.

February 2009 

 The Derivative Project provides written testimony in the House Transparency Act of 2009 requesting Congress investigate the use of taxpayer funds for collateral calls on credit default swaps between AIG and Goldman. Congress does not respond.

February 2010

The Derivative Project is launched online, urging Americans to come to gather to take action to restore real value to the economy and pass shareholder resolutions gathering information and/or limiting dealings with the top five derivative banks, that represent 96% of all over-the-counter derivative trades.

March 29, 2010

State of California Treasurer requests information from the top five derivative trading banks on details on their speculative credit default swap trades on State of California municipal bonds.

June 4, 2010

State of California Treasurer urges tougher Federal limits to curb speculation with credit default swaps linked to Municipal bonds.

July, 2010

The Office of the Comptroller of the Currency (OCC) releases First Quarter 2010 derivative trading statistics by top five commercial banks.  Revenues from credit default swap trades are at an all -time high, $2.7 billion, which represents 33% of the total derivative trading income, $8.2 billion.  However, credit default swap contracts represent only 7 % of all derivative contract volume and are not used by end users for facilitating valid commerce.  Only 10% of credit default swap contracts are used for valid hedges.

July 2, 2010

Senate Conference committee. yielding to pressure from Senator Scott Brown (R MA) removes tax on banks to pay for monitoring systemic risk on top five banks' speculative derivative trades, placing onus, once again, on American taxpayer.

July 8, 2010

Appleseed launches the first sustainable value equity fund, that prohibits investments in the top five derivative trading banks, or "two-big too fail banks", along with tobacco firms and pornography firms.

July 2010

Dodd/Frank was passed.

It is apparent nothing has changed.  There is on-going regulatory capture.  The rules are ambiguous and without clear enforcement actions and the underlying regulatory failures will continue leading to another financial collapse, that unfairly burdens the "little guy, not to mention the morals and fabric of our society.

November 2010

The Derivative Project submits comments to the SEC on the President's Working Group on Money Market Reform, advocating for more online disclosure on assets underlying asset backed securities.  Without this information, any disclosure is meaningless to investors and the average retail investor cannot perform required due diligence.

December 2010

On December 3, 2010 The Derivative Project meets with SEC Commissioners Paredes, Walter and Aguilar, in addition to Chairwoman Shapiro's Deputy Chief of Staff concerning the Office of Investor Advocate.  The Derivative Project is told on that date by Deputy Chief of Staff that this Office will not be funded in 2011 due to Republican budget constraints.

The Derivative Project is asked by Chairwoman Shapiro's Deputy Chief of Staff if she would like her comments published, as required of any public disclosure.  The Derivative Project responds she would like the materials published at the SEC public comments on the Office of Investor Advocate.  Here is The Derivative Project Report:

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given to all three Commissioners and Chairwoman Shapiro's Deputy Chief of Staff on December 3, 2010.

To this date, the SEC has not published this meeting with The Derivative Project, nor the written comments provided to the three SEC Commissioners in each individual meeting and with the Deputy Chief of Staff of Chairwoman Shapiro.

Here is the SEC's Comment and Meeting list for the Office of the Investor Advocate, that omits  The Derivative Project 's December 3, 2010 meeting on the subject of SEC Advocate and accompanying materials provided to the SEC Commissioners and Staff.

Study on Enhancing Investment Adviser Examinations under Section 914 of the Dodd Frank Wall Street Reform and Consumer Protection Act, File No. DF Title IX—Enhancing IA Examinations

January 2011

Congresswoman Michelle Bachman(R-MN), Chair, Tea Party Caucus, submits legislation in the Republican controlled House to repeal Dodd-Frank.

January 4, 2011

February 2011

The Derivative Project submits comments, as requested by the Joint CFTC-SEC, on the regulatory costs to taxpayers on the Dodd-Frank regulation concerning OTC derivatives.

There is an alternative that both Congress and Wall Street refuse to address on behalf of taxpayers and that is the easy movement of certain OTC contracts to regulated exchanges. In particular, there is absolutely no reason that all speculative credit default swaps cannot become regulated futures contracts, trading on regulated exchanges., saving U.S. taxpayers billions of regulatory costs.  It would cut into Wall Street trading profits and increase transparency but the pros and cons for U.S. taxpayers must be outlined in a cost-benefit analysis, that is yet to be addressed by the CFTC, SEC and Congress.

July 2011

Wall Street lobbying organizations seek to dilute effectiveness of over-the-counter derivative rules established in Dodd-Frank.  Implementation is delayed, putting individual retirement investors at further risk.

Consumer "Advocate", Barbara Roper, "representing" retail investors for the Consumer Federation of America endorsed FINRA as the overseer of all SEC registered investors advisors, while the same week, the U.S. Chamber of Commerce published a study showing the lack of any transparency and any training in the financial markets for FINRA executives, supporting many retail retirement investors claims that FINRA is the "fox guarding the hen-house" and actually harming individual retirement investors accounts.

Here is the U.S. Chamber Study on U.S. Capital Markets Competitiveness:  The Unfinished Agenda published this month.

April 2012

The Derivative Project submits Petition for Rule making to SEC


with four objectives:
  • Ban dually - registered Wrap Accounts

  • Eliminate FINRA as self-regulatory organization for any retirement account

  • Allow the private right of action for any retirement account

  • Ban mandatory arbitration for any retirement account.

"...Don’t depend on our leaders to do what needs to be done. Because whenever the government has done anything to bring about change, it’s done so only because it’s been pushed and prodded by social movements, by ordinary people organizing..."

 The Derivative Project Team

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