Broker Seeks $35 Million From Customers of Wiped-Out Fund Manager
(Bloomberg) -- For investors wiped out by OptionSellers.com’s disastrous trading in the natural gas market, the ordeal isn’t over, as a brokerage that handled their accounts pursues them for millions of dollars.
INTL FCStone Inc. liquidated about 300 client accounts managed by OptionSellers after their balances fell below minimum margin requirements. The brokerage is now seeking $35.3 million it says it’s owed by the clients, according to a Nov. 28 filing.
OptionSeller’s implosion made headlines around the world last week after its founder James Cordier posted a confessional video on YouTube in which he said wild gyrations in the gas market had “likely cost me my hedge fund.”
His firm specialized in writing commodities options for high net-worth individuals. While the sums of money involved are relatively small for a so-called hedge fund -- by one estimate, the total losses may exceed $150 million -- the debacle raised eyebrows in the investment world because the firm’s clients not only lost all their money but also ended up owing additional sums.
FCStone said customer agreements obligated account holders to reimburse it for any deficits, and that no individual account receivable exceeds $1.4 million. While FCStone offered no other details on the deficits, Jason T. Albin, a lawyer at ChapmanAlbin LLC who’s dealt with OptionSellers clients, said last week that the broker borrowed on margin against the accounts to cover money-losing positions.
“The exposure to losses from these customer accounts is not yet determinable, as collection efforts are in early stages, given the timing of events that led to the receivable balances,” FCStone said in the filing.
Kent Coughlin, an FCStone spokesman, said the company had no further comment. OptionSellers didn’t return calls or emails seeking comment on the filing.
The efforts come a few years after FCStone was involved in a separate natural-gas options controversy. In 2013, the Commodity Futures Trading Commission fined the company $1.5 million for what it called a failure “to prevent an unchecked customer from taking grossly excessive risks” in a case where FCStone ended up with losses of $127 million, according to a CFTC notice in May of that year.
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