The Misguided Bond
Case 11

Prepared by

for Professor C.E. Reese in partial fulfillment of the requirements for
ACC 541- FORENSIC ACCOUNTING

School of Business/ Graduate Studies
St. Thomas University
Miami Gardens, Fla.
Term A1/Spring, 2015
March 25, 2015

Table of Contents
Issues………………………………………………………………. 1
Facts……………………………………………………………….. 1
Analysis/ Authority………………………………………………... 6
Conclusions/ Recommendation……………………………………. 8

Issues 1. What is Martin’s actually return for 2000, 2001, and 2002? 2. What would have been Martin’s return for years 2000, 2001, and 2002 if his portfolio had remained with its initial holdings? 3. How do STRIDEs contrast with conventional bonds? 4. How appropriate were these STRIDEs for a 78 year-old with Martin’s stated investment objectives? 5. Considering that the prospectus and accompanying supplemental prospectus exceeded 300 pages, is this reasonable to expect “Joe Investor” to digest this volume of information? 6. How does Blink’s representation of the STRIDE as reported in the statement of claims contrast with the actual nature of this product, as reported in the supplemental prospectus? 7. Assume you are an arbitrator panel member. Would you order the brokerage firm to awards Ralph any damages? If so, how much? Why?

Facts Late in 2001, Ralph Martin, a former clothes salesman, sat on his patio evaluating his current retirement portfolio. Ralph, a 78 year-old retiree, had little interest in investment and had previously depended on his long-term friend and financial advisor for investment advice. However, Fred had died almost two years earlier and Blink Stowards, another advisor, had worked with Ralph since then. At the time of Fred’s death, Ralph’s $750,000 portfolio was split somewhat equally among intermediate term bonds paying income at approximately 6%, blue chip stocks yielding income of