A couple of lawyers passed quietly through Washington on Good Friday, a visit easily missed in a city overcharged with such professionals. The lawyers were in DC to lobby the Commodity Futures Trading Commission for relaxation of some of the Dodd-Frank Wall Street Reform Act provisions affecting derivatives, also something all too common in this town where too often the story is about the financial services influence army.  Off the very public stage of Congressional hearings rages a very expensive underground war to prevent implementation of the Dodd-Frank law for which Public Citizen fought.

But Frank Iacono and Steve Plake don’t actually practice law, and they aren’t speaking on behalf of any of the major industry constituencies. They practice derivatives. Iacono helped develop the credit default swap. That’s the insurance-like product an investor can buy to hedge against the non-payment of amounts owed on bonds or loans.  (And you don’t even need to own the bond or loan—like buying fire insurance on your neighbor’s house. That’s one reason they’re called derivatives. They “derive” their value from something.)   Contact them at www.riversideadvisors.com if you’d like more details on how these things work.

Now, they’re attempting to clean up the derivatives market from within. Among their clients is a not-for-profit who attempted to lock in protection against rising interest rates on its borrowings with a fixed-floating swap, the most common derivatives product in the market. Unfortunately for this client, an intermediary fixed them up with Lehman Brothers as the swap provider, who defaulted on the contract and is now asking the client for a termination payment.  Riverside is assisting the not-for-profit, pro-bono, in its settlement negotiations with Lehman.  Exactly what the intermediary said about this swap is now part of the grievance.

And that’s only one of the interesting elements to their story. (We met at the Firehook Café, which isn’t actually a bar, but serves amazing lobster bisque on Fridays.)

• These men think we could be in for another crash. Some of our biggest banks still suffer major financial cavities which under current disclosure standards cannot be detected from the financial reports. They need major surgery.
• We need certification for derivatives advisors so they can promote better understanding by end-users and thin out the hucksters. Too many fly-by-night salesmen freight the portfolios of uninformed investors with high-risk derivatives.

Iacono, who hails from Long Island near his newly-formed boutique Riverside Risk Advisors in Manhattan, received his undergraduate degree from Yale before minting himself with a Harvard Law degree. As a third-year law school intern, he helped Orange County dig out of the mess left by investments with such exotic names as “inverse floaters” and “structured repos” – investments which were not fully understood by Treasurer Robert Citron and his staff.

Plake ventured from northern Indiana to Cornell, then Washington University Law School before trading derivatives in St Louis, and finally landing two months ago at Riverside.

Riverside describes itself as an “advisory boutique specializing in derivatives and structured financial products” which brings “transparency, better understanding of risks and improved pricing and transaction terms” to its clients. We disagree with at least some of what they say about pending regulatory proposals to rein in reckless derivatives trading. They’re in business and while their bottom line may include a better America, it also includes a richer Riverside Risk Advisors. Public Citizen is strictly non-profit.

But part of their marketing strategy consists of free training sessions on derivatives. That may seem more painful than a root canal, but it’s the kind of treatment more of us should undertake if we’re going to survive in this brave new world of complex finance. Good luck, fellas.