A few Fidelity executives said in e-mails that the firm should reach out to Deutsch. Instead, it held a call with David O’Leary on July 10, while China Medical trading was still halted, documents reviewed by Bloomberg indicate. O’Leary explained his China Gold strategy and his view that the firm was worth $30 per share, according to O’Leary and records of the conversation. “Peter Deutsch—did not want shorts to borrow the stock. Moved all from margin to cash,” Fidelity call notes reviewed by Bloomberg say.
O’Leary says he had no inkling then that Fidelity was concerned about Deutsch’s trading or about to cut them off. Likewise, Deutsch says Fidelity gave him no indication that it had any such concerns until Monday, July 16, the day China Medical resumed trading—and Deutsch tapped the “buy” button on his iPad and got zilch. He says Fidelity, which at least one employee believed may still have needed 300,000 shares itself, did tell him he could sell.
Exactly what actions, if any, Fidelity may have taken at the time against Deutsch or AER remain unclear. Fidelity court filings state that it is barred by law from confirming or denying whether it filed a Suspicious Activity Report with Treasury flagging Deutsch or anyone else. AER did ultimately receive four SEC subpoenas and an on-site audit by New Hampshire securities officials. Regulators took no further action against AER. O’Leary is closing his firm but continues to talk frequently with Deutsch about investing.
Shortly after Fidelity stopped him from trading China Medical shares, Deutsch initiated his Finra arbitration. Almost two years later, on July 8, 2014, Fidelity sought during arbitration to protect its documents under the Bank Secrecy Act. (Fidelity went to federal court in 2015 seeking the same protection because it takes seriously a law that helps “protect against money laundering, tax evasion and other illegal financial activity,” according to spokesman Banker.) A month later, in August 2014, China Medical filed for bankruptcy protection in Manhattan, listing $426 million in senior convertible debt. Efforts to reach the company in China were unsuccessful.
Deutsch himself is undaunted. While he’s moved his brokerage account from Fidelity to Charles Schwab, his keenness for aggressive investing remains intact. So does his willingness to live with the consequences if his investments blow up, he says. But he staunchly rejects the notion that China Medical was a bad bet, and he’s spending a small fortune to prove Fidelity is at fault.
Reflecting on everything he should have known but didn’t during his pursuit of China Gold, Deutsch ruefully remembers a scene in the FFOS fish-tossing video. At one point, the camera settles on FFOS President Ed Orazem, who says, “The most incredible things happen when you’re not looking.”