Hedge fund man­ager con­fesses he lost all his clients’ money — es­ti­mated at $150M

Calgary Herald - - FINANCIAL POST - MARVIN G. PEREZ, ISIS ALMEIDA AND NAUREEN S. MA­LIK

It looks like the hedge-fund equiv­a­lent of a hostage video.

James Cordier, in a dark suit, cuff links and ex­pen­sive-look­ing watch, sits in a brown leather chair and stares into a cam­era, his hands folded in front of him.

Then he de­liv­ers the bad news. His voice near-break­ing at times, the hedge fund man­ager em­ploys nau­ti­cal terms to tell his clients in a round­about way that he’s lost all of their money — in the neigh­bour­hood of US$150 mil­lion, ac­cord­ing to one es­ti­mate.

In a 10-minute video posted on YouTube, Cordier says his clients are like “fam­ily.” But now, blam­ing a “rogue wave” in the nat­u­ral gas mar­ket, Cordier says he had “cap­sized the boat,” that he had failed to “steer your in­vest­ment like a boat” and was un­able to keep “her afloat.”

Re­cent gy­ra­tions in the nat­u­ral gas and oil mar­kets “likely cost me my hedge fund,” he said of his Tampa-based Op­tionsellers.com.

The col­lapse is a stun­ning turn­about for Cordier, who lit­er­ally co-au­thored a book on the topic, The Com­plete Guide to Op­tion Sell­ing.

In May, per­haps fore­see­ing trou­ble, he wrote an ar­ti­cle in Fu­tures mag­a­zine about the per­ils of trad­ing in the gas mar­ket.

With the firm’s money lost, he names clients and ac­knowl­edges his re­la­tion­ship with them is fraught. He ex­presses re­gret that he won’t be join­ing one client in the French Riviera, that he won’t be vis­it­ing an­other in­vestor on the Gold Coast of Aus­tralia to watch the sun­set, that he owes yet an­other a Cuban sand­wich.

Ac­counts be­long­ing to Op­tionsellers.com, which spe­cial­izes in writ­ing commodities op­tions for high net-worth in­vestors, have been liq­ui­dated, INTL FCS­tone Inc., the bro­ker­age that cleared the firm’s trades, said Mon­day in a state­ment to Bloomberg.

“I am so sorry for not man­ag­ing our ship and keep­ing her afloat,” Cordier says fi­nally.

Cordier hasn’t re­sponded to re­peated emails and calls seek­ing com­ment. Rose­mary Veasey, the com­pany’s of­fice man­ager, de­clined to com­ment on its losses. The U.S. Com­mod­ity Fu­tures Com­mis­sion de­clined to com­ment on the fund.

The losses from the fail­ure of the fund could ex­ceed US$150 mil­lion, ac­cord­ing to Ja­son T. Al­bin, a lawyer at Chap­manAl­bin LLC, who said he’s been con­tacted by at least 60 clients of Op­tionSellers. “Ev­ery­body ’s ac­count was wiped out,” he said in a tele­phone in­ter­view.

More­over, he said, FCS­tone bor­rowed on mar­gin against the ac­counts to cover money-los­ing po­si­tions. In the end, the clients didn’t just lose all their money, they also now owe FCS­tone for the loans, he said.

The price moves in en­ergy mar­kets were ex­treme by al­most any mea­sure.

Oil prices slumped on Nov. 13 by the most in three years on a weaker de­mand out­look. The next day, U.S. nat­u­ral gas fu­tures jumped as much as 20 per cent for their big­gest in­tra­day gain in eight years amid con­cern that win­ter weather will be colder than pre­vi­ously ex­pected. Stock­piles of the heat­ing fuel have fallen to a 15-year sea­sonal low.

The swings in gas were some of the big­gest since the shale boom started a lit­tle over a decade ago, with some traders com­par­ing the tur­moil to the af­ter­math of the 2006 blow-up of hedge fund Amaranth Ad­vi­sors LLC. The so-called widow-maker spread in nat­u­ral gas, the dif­fer­ence be­tween March and April gas fu­tures con­tracts, blew out to as much as US$1.75 per mil­lion Bri­tish ther­mal units from about 30 cents just a week ear­lier. Gas prices then posted a record de­cline on Nymex on Nov. 15.

FCS­tone said the volatil­ity in gas “caused liq­uid­ity stress for our U.S. Fu­tures Com­mis­sion Mer­chant cus­tomers both on the com­mer­cial and in­sti­tu­tional side,” but that its com­mer­cial cus­tomers have met their mar­gin calls.

“Al­though well col­lat­er­al­ized, ac­counts man­aged by a Commodities Trad­ing Ad­vi­sor, Op­tionsellers. com, had to be liq­ui­dated as a re­sult of these moves,” FCS­tone said.

Op­tionsellers.com’s Cordier wrote in his Fu­tures mag­a­zine ar­ti­cle about the per­ils of trad­ing in the gas mar­ket.

“Nat­u­ral gas is a tough mar­ket to call in the short term,” he said. “Weather fore­casts can bring pub­lic spec­u­la­tors to the mar­ket in mass, caus­ing wild daily fluc­tu­a­tions, es­pe­cially dur­ing the win­ter months. This makes pure gas fu­tures trades risky.”

I am so sorry for not man­ag­ing our ship and keep­ing her afloat.

James Cordier of Tampa-based Op­tionsellers.com blames a “rogue wave” in the nat­u­ral gas mar­ket as he ad­mits in a YouTube video to clients that he had failed to “steer your in­vest­ment like a boat.”

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