Wiped-Out Fund Investors Seek to Recoup Losses From Broker https://www.bloomberg.com/news/arti...nvestors-seek-to-recoup-losses-from-brokerage Tampa investment firm clients owe millions to broker-dealer that executed single-day trade, firm says Crystal Owens - Tampa Bay Business Journal (SUBSCRIPTION) Clients of the Tampa investment firm OptionSellers.com who lost millions earlier this month in a short call position on natural gas owe at least $35 million to the broker-dealer firm that executed the single trade. INTL FCStone, an international firm with offices in Winter Haven, is likely to seek more money from OptionSellers' clients, according to Joseph Peiffer, a New Orleans-based attorney and managing partner at Peiffer Wolf Carr & Kane. The firm, the second to come forward to represent OptionSellers' clients, said INTL FCStone claimed in a Nov. 28 statement of financial condition that each of OptionSellers' clients owe the brokerage firm as much as $1.4 million.
How can I as a retail investor avoid mistakes and not picking OptionSeller.com? He wrote a book, said it was low risk and had a good track record. Everything seemed to check out? Another question, how do I monitor my account to spot trouble?
Everyone has a good track record until they make a major mistake. Then they don't have a good track record. It just proves that writing a book about a thing does not make one an expert on said thing. I suppose the guy knew what he was doing for years, but dropped his guard precisely at the wrong time. Whoopsie daisy! You can't avoid a mistake like picking optionsellers.com, because everyone is vulnerable to making the same mistakes as James Cordier did. But you can protect yourself by simply self-managing your fund.
Why couldn't this guy have used an option spread to eliminate the risk? So he sold deep out of the money calls - why couldn't he have bought an equal number of calls to what he sold even further out of the money? They would have only cost say 10 or 20 percent of the money he was paid for the options he sold. So the fund return goes down by 10 or 20 percent, and is now say 8% instead of 10%. Still respectable - I doubt he would have lost too many clients because of returning 8% instead of 10%, and he would be completely covered in the event of an unexpected move such as the one that occurred.
Anyone knows what was optionsellers.com fund performance before they blew up? I wonder if there were warnings signs that could be heeded in the fund performance.
Maybe he could have, and he might have been doing that through the fund's lifespan. But he decided to go all in, unhedged, at just the wrong time and got bit. (And you don't need options to lose your shit in a day. It can happen anywhere. But I digress). He had bad timing. The suck of it all is that he decided to do it unhedged, take the chance, with his entire bankroll. Which in this case was mostly OPM. So he lost everyone else's money. Wonder if he is sitting on a beach collecting 20%
Apparently he didn't risk his money.. https://www.chron.com/news/crime/ar...m-high-roller-to-YouTube-apology-13620710.php How man went from high roller to YouTube apology Published 2:00 am CST, Saturday, February 16, 2019 TAMPA, Fla. (AP) — James Cordier seemed a man on top of his game. He lived in a bayfront mansion with travertine floors and an infinity pool. He had a sleek office in a downtown Tampa skyscraper. Jeff Vinik, owner of the Tampa Bay Lightning, and nearly 300 other wealthy clients trusted him to make smart decisions with their money. Recommended Video Cordier was considered such a genius at trading options — the right to buy or sell commodities at a certain price — that thousands of investors had bought his books, read about him in newspapers, listened to him on cable TV. Then, in mid-November, Cordier bet that natural gas prices would go down while crude oil prices went up. The reverse happened, and just like that, his clients lost at least $150 million. ... The collapse of Cordier's OptionSellers.com was perhaps not as surprising as it appeared. The company nearly "blew up" once before, as former employee Michael Gross put it, because of its connection to a brokerage whose CEO landed in prison for embezzling more than $200 million from clients' accounts. It was impressive, however, that Cordier even had a company, especially one in such a high-stakes, high-risk business as options trading. His clients included doctors, lawyers and professors, yet he had only a high school diploma. What Cordier lacked in advanced education, he made up for in enormous self-confidence — and a passion for trading. Said Gross: "He seemed to be somebody really dedicated to what he was doing." ___ Cordier, now 56, grew up in Sturgeon Bay, Wis., one of six children of a police officer. After graduating from high school in 1980, he went to work at Sears and took commodities classes, as he later recalled in a deposition notable for his vague responses. "Did you take (the classes) at some sort of educational institution that had a name?" a lawyer asked him. "I don't recall what it was." His first full-time job after Sears — "to the best of my recollection" — was at Heinold, a commodities firm with an office in Milwaukee. He introduced customers to brokers, who bought and sold commodities like wheat and corn, and got a broker's license himself. "And what was your next job? "After some reflection, I will come up with that answer." Cordier did not respond to requests to be interviewed for this story. According to his deposition, he went on from Heinold to several other brokerages including Allendale Inc. near Chicago. In 1999, he started his own company, Liberty Trading Group. Why? he was asked. "The employment at Allendale I felt I was outgrowing. I was having supervisors overlook my trading stance in philosophy and no longer wanted to be encumbered by supervisors." Liberty was based in downtown St. Petersburg. Among Cordier's first hires was Gross, whose previous jobs included tending bar at the Don CeSar on St. Pete Beach. He had, however, a college degree and was a registered commodities broker. Commodities are raw products — grains, gold, oil, sugar, etc. — that are sold on about 50 major commodities markets around the world. In the simplest transactions, the physical products are delivered to the buyer at the time of sale. With options, the buyer has the right, but not the obligation, to purchase an agreed-upon amount of the commodity by a designated date. An airline, for example, could purchase an option to buy oil for $50 a barrel and exercise the option when oil prices are $100 a barrel. Cordier quickly established himself as an expert on options. Within a year or two of starting Liberty, he was being interviewed on Bloomberg Television. During the five years the company was in St. Petersburg, it never advertised because "people read my name in the Wall Street Journal and saw me on TV," he said. In 2004, Cordier moved his company to downtown Tampa and an office in the SunTrust Financial Center overlooking the Channel District and Port Tampa Bay. He and Gross co-authored a book, The Complete Guide to Option Selling: How Selling Options Can Lead to Stellar Returns in Bull and Bear Markets. Published by McGraw-Hill, the 369-page tome sold well enough that it went to a third edition and was even printed in Chinese. About the same time, Cordier made what would be a fateful decision: to switch to a different broker. While Cordier advised clients or even decided for them what trades they should make, his company did not handle money or execute the actual trades. Instead, clients set up accounts with a broker, which handled the orders to buy and sell. Liberty's new broker was Iowa-based Peregrine Financial Group, commonly known as PFG. Cordier bonded with the broker's CEO, Russell Wasendorf Sr. "He was a large fan of football," Cordier said in a deposition. "He was a large fan of football cheerleaders. He understood that one of our employees was a football cheerleader and he communicated to us a number of times that he would like to have a calendar." Cordier sent Wasendorf a calendar with photos of Tampa Bay Buccaneers cheerleaders. He was rewarded with an invitation to a Bears' game in Chicago. As Cordier's renown grew — he was seen on CNBC, quoted in Barron's, Reuters and USA Today — so did his company. Among his 300 clients was John Wigmore, a retired California lawyer who was seeking bigger returns for two trusts he controlled. He first learned about Cordier on Optionetics, which offers courses on options trading, then read his book and flew to Tampa to meet with him. "Cordier said more than once that the only risk to your fund is market risk," Wigmore later said in a deposition. "He said PFG had an impeccable business reputation. I had James Cordier and his reputation and his experience." Wigmore opened a brokerage account with PFG but said Cordier and Gross told him that his money — which represented most of his retirement income — would be held in a "safe, individual account" with a major bank. It would not be co-mingled with other accounts and would be "100 percent available" in the event of a PFG bankruptcy or insolvency. Wigmore put in $1.45 million. On July 10, 2012, PFG filed for bankruptcy. That was one day after Wasendorf, the CEO, tried to asphyxiate himself and left a note describing how he had been stealing from customers for nearly 20 years. Wasendorf pleaded guilty to embezzling $215 million and was sentenced to 50 years in federal prison. The bankruptcy filing froze clients' funds, including money that Wigmore said he had been assured was safe and could be withdrawn at any time. Cordier and Gross "made promises to me that were utterly false . . . and for that reason it led me to lose a lot of money," Wasendorf said in the deposition for a lawsuit he filed against them. In his own deposition, Cordier said he didn't know about PFG's history of regulatory violations. Nor had he felt any obligation to investigate the company before making it Liberty's clearing broker. "My duties were, in my mind, to trade with my clients' interests in mind," Cordier said. "I relied solely on federal regulators to make sure their money was safe." At least $817,000 of Wigmore's money eventually was unfrozen and returned to him. In 2015, he settled under confidential terms with Cordier, Gross and Liberty Trading Group. In a deposition, Gross called PFG's collapse a "tremendously traumatic event" for him and one that nearly "blew up" Liberty. "I had spent the last six months (after the bankruptcy) dealing with people that had their money tied up with PFG," he said. "As you can imagine, many of them were not happy. I tried to help them the best we could through the six months period but at this point we had no business. I had no income for six months." Gross did not respond to an interview request left at his home, but a court filing indicated he is no longer in the commodities business. Liberty, though, survived. Cordier found another broker — INTL FCStone, a huge firm based in New York — and renamed his company OptionSellers.com. ___ By appearances, at least, Cordier seemed to have rebounded well from the PFG fiasco. In early 2016, he contracted with Taralon Homes for $1.5 million to build a house in South Tampa's tony Beach Park area. Later that year, he married Krista Ringer, 26 years his junior, in a formal wedding in Sturgeon Bay. In 2017, they sold the Beach Park house and paid $1.6 million — cash — for a 6,000-square foot bayfront home in the gated Andalucia community of Apollo Beach. From his office on the 23rd floor of the SunTrust building, Cordier again built a large roster of well-heeled clients around the globe — France, Australia, the United Arab Emirates, and all over the United States. Some entrusted him with $1 million or more to trade in options. Cordier was a proponent of "naked call options," one of the riskiest types because the seller does not own the underlying commodity. In early November, it appeared that natural gas prices would drop because of what was expected to be a warm winter. Cordier, on behalf of his clients, sold naked call options at prices based on that expectation. But instead of falling, natural gas prices shot up nearly 20 percent in a single afternoon. Because Cordier didn't own any natural gas, he had to buy it at the higher prices and immediately turn around and sell it to whomever had bought his options at lower prices. "Putting it simply — he had to buy very high and sell really low," researcher Adem Tumerkan wrote in an online analysis. In a video posted Nov. 16 on YouTube and viewed more than 580,000 times, Cordier apologized to his clients, or "family" as he called them. His hands were clasped, the sleeves of his suit jacket drawn back just enough to reveal French cuffs and a Rolex watch. Over the next 10 minutes, Cordier had personal messages for several clients: "Dr. Steve in L.A. — happy to share that Krista's ailments are gone and she feels so great." ''Curt and Grace — so sorry to say we never got to go bass fishing." And "the biggest hockey fan in the world" — Vinik — "all I want to do is sit with you and watch a game." ... Cordier's clients not only lost all of the money in their accounts, they also owed FCStone, the broker, a total of $35.3 million it had loaned them to make trades. One elderly Fort Myers man lost $1.8 million and owed FCStone $571,000. An investor in the Tampa area lost $450,000 and owed $125,000, Recently, the phone at OptionSellers' office was still being answered by one of Cordier's employees. But with the company thought to be out of assets, former clients are seeking redress from FCStone, which had nearly $30 billion in revenues last year. An Ohio lawyer, Jason Albin, already has filed claims on behalf of nearly two dozen Florida and Michigan clients. Cordier had recruited investors to open accounts at FCStone by promising "high returns and fastidious risk management," Albin said in a complaint. Instead, the brokerage ignored risks in order to appease Cordier, who was generating large commissions for it, the complaint says. For all his touting of options, for all of his success in getting others to invest in them, Cordier never put any of his own money into options. In a 2009 interview with the St. Petersburg Times (now the Tampa Bay Times), he explained why: "The best way to invest for my clients without emotion is not to have skin in the game. I do extremely well investing for 300 people."
Similarities here to trading Sim, easy to make money on Sim, no emotions and not living in the real world.
Thanks. I thought that most people trading options say that selling options for premium is the only way to go and that buying puts and calls only leads to losses in the long run?
My experience selling options has been the opposite. I lost thousands of dollars trying to earn a couple of hundred dollars. I would rather risk a couple of hundred to earn thousands. Seems backward to risk thousands to win a few hundreds. Why not risk a few hundred to win thousands. Just my 2 cents. You should find out first hand the truth by testing it out for yourself!