Mr. Williams responds

Mike Lundgren
After a five-year hiatus, Mike Lundgren is back trading Live Cattle futures. And when you take the measure of theman, it's surprising he stayed away this long."With everything I do" Mike says, "I love to compete."Lundgren is comfortable at center stage, and it shows. In '92, he served as President of the Washington State CattleFeeders Association and on the Board of Directors of the National Cattlemen's Association. That same year he wasnamed Washington State Cattle Feeder of the Year. From '92 to '95, he was the youngest majority owner of aContinental Basketball Association team.
Since 1996, Mike has been majority owner and president of Canyon LakesGolf Course, one of the top daily fee facilities in Washington.And his trading wasn't too shabby, either. Over a four-year stretch, he rode herd over professional divisioncompetitors in the World Cup Championship of Futures Trading with a trio of first-place finishes: '89 with a 177%*return, '90 with 244%*, and '92 with 213%*. "I had heard about the World Cup on television and in Futuresmagazine, and I thought 'Hey, I think I can do pretty well myself,'" Lundgren says. "At that time I believe no onehad better information about the cattle market than I did."Today, Lundgren remains closely tied to the cattlemen's community. "I still have the opportunity to visit with thecattle feeders and buyers," he says. "That's important, because I've always believed that in the marketplacefundamentals eventually win out over mechanical systems and technical analysis."Mike's return to trading will follow a familiar path, with a mix of outright and spread positions.

 

PART 1

Marketsurfer,

Please read this post carefully and in its entirety.

You suggested I conduct my own research, and I did. I spoke with an enforcement attorney at the NFA and discussed the matter. I read him the NFA’s Findings and Conclusion, as quoted in William Gallacher’s book “Winner Take All.”

http://www.amazon.com/gp/product/15...f=pd_bbs_1/104-8761015-3483935?_encoding=UTF8

The quote, you will recall from page 16 of this thread is as follows:

Findings and Conclusion:

”There is no question that Mr. Williams's personal trading accounts had a material effect upon his composite trading performance. The record reflects that for the first quarter of 1987, Mr. Williams's composite performance showed a loss of $6,122,281, while at the same time Mr. Williams's personal accounts experienced a gain of $902,599. The Panel finds that the fact Mr. Williams was making significant gains while managed customer accounts were suffering considerable losses would be a material fact which a potential customer would need to know in order to make a fully reasoned decision.”

The enforcement attorney advised that, with the exception of a word or two, the quote was accurate, and that it was representative of the findings. Because I do not have a fax machine, the full text of the case is being sent to me by mail, as it is a matter of public record. Unfortunately, the full text of any case is not available on the Internet as a matter of course. However, I was also advised that anyone could get the full text by going to a local library and looking at the annual NFA Manual published by Warren Gorham Lamont Publishing. Although annual publication of this manual ceased in 1993, you will be able to find the Conclusion in question by consulting the appropriate year. Remember, the incident in question occurred in 1987, but dragged on to 1990 with the appeals process. Therefore, you may wish to check the manuals for that entire period. I, on the other hand, will be receiving my copy in the mail. Perhaps I will be able to e-mail it to you in due course, but I think it would be better if you get it from an independent source since you probably would not fully trust what I would send you.

Now that we have established that Mr. Gallacher’s quoted reference was valid, let us proceed. However…

Before we begin, it is essential to understand that what I am going to explain to you is NOT to be construed as a statement of fact. Rather, what I will present to you is nothing more than a HYPOTHESIS for educational and illustrative purposes only. Coincidentally, this hypothesis (among potentially many others) just happens to fit the facts that are known.

To begin, let us review the few facts that are known.

1. During the course of the contest in 1987, Larry’s composite performance showed a loss of $6,122,281 while his personal accounts experienced a gain of $902,599, as outlined in the NFA’s Findings and Conclusions.
2. As explained in a fair amount of detail in William Gallacher’s book, Winner Take All, Larry appeared to have an interesting relationship with the contest sponsoring broker, Robbins Trading Co. It appeared to be something other than fully arm’s length. (Heck, they even got fined together.)
3. Larry’s accounts and those of his managed accounts were evidently not segregated.

Of course, we could just leave it at that, but let us hypothesize, solely for educational and illustrative purposes. Just for fun. One hypothesis for the given set of known facts is that the proverbial fox was guarding the henhouse. And at the end of guard duty, the henhouse is empty (to the tune of millions of dollars), while the fox is fat and full ($902,599, as at the time of the NFA’s investigation).

Consider two parallels. Nick Leeson was thought to be an outstanding trader because he secretly hid his mounting losses in a bogus client account. He had hoped he would be able to reverse the damage with some good trades before he was found out. And so, things seemed to be going well until the house of cards folded, and Barings along with it. Enron’s traders were considered to be the best in the business because no one knew that their losses were being parceled off into a complex labyrinth of “other” companies/partnerships. (Or something like that.) What maintained the illusion in both cases was an opportunity to take credit for winnings and pass off the losses. And what is interesting to note is that the eventual losses that were incurred far exceeded the presumed profits in both of these cases. This suggests that Nick Leeson and the aggregate of Enron traders were nowhere close to being even break-even traders, let alone profitable.

And so it is with our entirely hypothetical scenario (presented solely for educational and illustrative purposes) for Larry. Hypothetically, it apparently required losses in the several-million-dollar range in the unsegregated managed accounts to generate profits in the million-dollar range. Some people might think that these are two separate and independent events when, under this plausible albeit hypothetical scenario, they are simply different sides of the same coin: the superb returns are a result of funneling most of the losses elsewhere. Here we have a trader with unsegregated accounts and a seemingly close relationship with his broker. How difficult would it have been, hypothetically speaking of course, to initiate a trade and wait a while to see if it would move in the right direction before directing ownership of that trade to either his personal account or the managed accounts? Remember, we are talking about a hypothetically less-than-arm’s-length relationship with a broker who is no stranger to the NFA. So, let’s say Larry goes long the S&P 500 futures contract. He waits a while. If the price begins to go up, he assigns it to his account. If price goes down, how passes it off to the managed accounts. You can be sure that the managed account clients will not be monitoring performance on a trade-by-trade basis. All they get are periodic and disappointing summaries. And you will recall that in those days, time stamping of transactions was an issue,* which also allowed for some additional maneuverability among hypothetically willing conspirators. But we’re just hypothesizing here. (However, for your information, this would NOT be the first time such a thing happened in the trading world.)

That was in 1987. In July 1988, the Larry Williams Financial Strategy Fund was launched, followed in March 1989 by the World Cup Championship Fund, managed by Larry Williams, Jake Bernstein and two other “traders.” The 1988 fund lost more than 50% of its clients’ equity in barely one year, as reported in the October 1989 issue of Futures magazine. The 1989 fund also lost more than half of its original equity by May 1990. So, Larry tried at least 3 different times to manage client money with surprisingly disastrous results. These are facts.

Coming back to our ongoing hypothesis (presented solely for educational and illustrative purposes and not to be construed as statements of fact), one wonders why Larry has not entered the contest again. After all, the contest his marketing material keeps harping on took place almost 20 years ago. Wouldn’t it be nice if he entered it again just to reassure us that he has still “got it?” Of course, under our proposed hypothesis, he would have to also manage client money (into the ground) simultaneously in order to generate such lofty returns in his own account. Is managed money perhaps difficult to come by after disaster followed by disaster? But that is the necessary opposite side of the coin, as presented in the above hypothesis. Or is it a question of pattern. After all, the NFA got wind of the diametrically opposed returns in personal and managed accounts the first time around. Would trying it again and creating the same pattern of significant personal gains accompanied by simultaneous disastrous managed account losses be just a little “too much?” We can only speculate under the scenario of our proposed hypothesis.

END OF PART 1

 

PART 2

And so ends our imaginative hypothesis. Most people here believe that Larry is an honest and genuine fellow, and who am I to argue with such compelling reasoning? However, it is interesting to note that, after 3 separate, successive and disastrous attempts to manage client money, the March 1993 issue of Futures magazine had a full-page ad for subscriptions to Larry’s Commodity Timing, with the title, “Legendary Larry Williams does it again and makes this special subscription offer to you.” The copy reads, as quoted by Gallacher, and as you can verify by consulting the March 1993 issue of that magazine:

”Yes, the 1992 tabulations are in and Larry Williams Commodity Timing sweeps the honors. Of all the major services whose every trade was monitored in 1992 by Commodity Traders Consumers reports, Larry Williams Commodity Timing was the clear winner. And, more importantly, the big winners were his subscribers who found out you could really make money trading commodities.”

Wow.

And finally, there is the matter of the Appeals Committee agreeing to make no findings against Larry, but imposing a $13,000 fine. If my hypothesis were anywhere near true, then why would the legal ramifications not have been more substantial? Here, I would like to revert to my imaginative hypothesis once again, presented solely for educational and illustrative purposes and not intended to reflect actual events in any way. The question arises, how can you make such an allegation stick? You have millions in losses in unsegregated managed accounts while the trader/promoter is simultaneously raking in cash hand over fist. How could you possibly prove wrongdoing if the trader is hypothetically in cahoots with the broker? All you have is evidence of unbelievable ineptitude on the one hand, and simultaneously consummate wizardry on the other. If the hypothetical fox and his cohort broker are in charge of the henhouse paperwork, what kind of paper trail could the authorities possibly latch on to? Hypothetically, the best they could do is warn an unsuspecting public about the questionable nature of the person involved. And to this end, I refer you to the last sentence of the NFA’s Findings and Conclusions, as quoted above. Specifically, “The Panel finds that the fact Mr. Williams was making significant gains while managed customer accounts were suffering considerable losses would be a material fact which a potential customer would need to know in order to make a fully reasoned decision.”

But, again, these are just the hypothetical musings of a bored mind prone to conspiracy theories from time to time. Who in their right mind would take anything I say seriously?


* For some interesting reading on time stamp laxity during the period in question, as well as other indiscretions, you may wish to read “Brokers, Bagmen, and Moles: Fraud and Corruption in the Chicago Futures Markets” by David Greising and Laurie Morse:

http://www.amazon.com/gp/product/04...104-8761015-3483935?s=books&v=glance&n=283155

 

your conversation with an "enforcement" attorney is nothing but hearsay. why not just post the actual action? i am tired of your inuendo and continual hearsay. let's go to the source..... i have forwarded this thread to LW--- to respond if he wishes.

best,

surfer

 

You know, just because you put me on ignore, that doesn't mean I can not point out inaccuracies in your posts. Here we go:

I thought we were talking about the WHOLE year, now it happened just in 3 MONTHS?? Than Larry is a bigger genius than I thought, or could it be that Gallacher can not even quote correctly from an official document???

 

Evidently, you did not take the time to read the entire post. As I noted in my post on page 22 of this thread, anyone could get the full text by going to a local library and looking at the annual NFA Manual published by Warren Gorham Lamont Publishing. Although annual publication of this manual ceased in 1993, you will be able to find the Conclusion in question by consulting the appropriate year. Remember, the incident in question occurred in 1987, but dragged on to 1990 with the appeals process. Therefore, you may wish to check the manuals for that entire period.

And as I noted, I am getting the 6-page document, which includes 1 page covering the appeal, in the mail. If I post it when I receive it, you would not believe it to be authentic, anyway. Therefore, I told you where you can get it at the source. It seems that your "extensive research" may not have been that extensive after all. Please don't expect me to spoon feed you.

 

So far this hasn't been proved, but nice try. Now for the love of Einstein, I just can not believe anyone would organize a trading competition, where different accounts can be freely mixed.

Right now, the rules go like this: You can not withdraw from the championship account, but you can add money, if margin requirements need to be met.

But supposed that Larry cheated, we must assume that his daughter cheated as well, because who can make a 1000% return?? Well, Mark Lundgren could too.

So if we accept that Larry's daughter (the apprentice) didn't cheat, why is it so hard to believe that Larry (the master) could do way more than the student???

 

I actually have you off of ignore this week.

Please note that the wording refers to Mr. Williams's personal accounts. That's in the plural and therefore, is not necessarily limited to the trading contest account at that moment in time. Also note that I was verbally advised that the quote was, for all intents and purposes, accurate. And, as i just advised marketsurfer in the last post, you can also verify it for yourself at a local library by consulting the books I mentioned both in my original post and the last post to surfer.

You folks really do need to focus.

 

Spoon feed him please. This will get terribly boring if you don't.

 

Pekelo, you don't even know what you don't know.