Could I be scammed?

1

1coolstrawberry

I"m considering setting up a managed account in my name and having someone trade options for me in a limited POA position. My acct is in a low cost brokerage house.

I read something on a forex forum thread here, where someone had lost most of their money in a mangaed acct. Someone responded saying,
"Good chance that he traded against a second "client" taking the opposite trades. Loses you as a client and keeps the happy client whom his more than happy with the 25% commission. Happy client stays in until he loses. He probally divides his clients into BUY and SELL and the trades are entered at the same time."

Is this something someone could do w/ options trading: covered calls and buying puts? I'm trying to find out if there is anyway I can be scammed that I'm not aware of.

Thanks in advance for anyone's help w/ this.
 
Anything is possible. If you're specifically asking if someone could scam you by taking the opposite side of the trade, yes.

Companies that have agreed to be bought out often have options with wide spreads, and often the MM's won't give you more than intrinsic value for them. An example is a $92 stock where the $95 put is quoted at $.40x$5.00 and the MM will pay no more than $3.10. Someone who owns some of these puts could put in an order to sell at $4.00. This would become the new best offer, and he could then have your account buy his puts for $4.00. He wins, you (most likely) lose.

You should thoroughly investigate anyone who's going to handle your money. Get their real name, make sure they're licensed, check if there are any complaints about them on the NASD site http://www.nasd.com/InvestorInforma...kgroundofYourInvestmentProfessional/index.htm . Don't let some anonymous person you met in a chat room handle your rmoney.
 
Thanks Loufah, for that link and your thoughts. No. it's not an anonymous person I met in a chat room. I see he doesn't have any complaints against him.

I met him when he was a rep for a reputable company but not working as a financial advisor. For the last 6 months he's been managing his own and a few other people's money. I'm really not sure what kinds of things I can ask for since it's not like looking at someone working for Smith Barney, say. Can I ask to look at his client's portfolios w/ their names blocked out? Anything else?

Thanks again.
 
One way of protecting yourself from this kind of fraud mentioned above is to simply check all trades against a quote feed for the security being traded. This might sound time consuming ... but it can be pretty easy if you are good with simple programming. I trade my own account, so I'm generally not worried about this kind of fraud, but I am concerned about bad fills. So I wrote a small Excel script (VBA script) that compares the trade price and time stamp from my daily statement to the quotes offered in the market around the time of the trade. If something fishy is going on with my fills, my script will find it right away. In the case of the fraud mentioned above, a script like mine would flag the fraud as a really BAD fill!
 
Quote from 1coolstrawberry:

Thanks Loufah, for that link and your thoughts. No. it's not an anonymous person I met in a chat room. I see he doesn't have any complaints against him.

I met him when he was a rep for a reputable company but not working as a financial advisor. For the last 6 months he's been managing his own and a few other people's money. I'm really not sure what kinds of things I can ask for since it's not like looking at someone working for Smith Barney, say. Can I ask to look at his client's portfolios w/ their names blocked out? Anything else?

Thanks again.
More...

1) If you are asking these questions on an open forum, you likely don't trust the guy enough to be doing this. So follow your instinct.

2) Options trading is all about playing probabilities. Would you take 100% account risk in one options trade? Thats what you are effectively doing by giving someone else POA over an account, especially someone if you're not sure to trust.

If I were you, I'd spend the time and learn to trade the options myself, and at least take ownership over a 100% loss rather than letting someone else do it for you. At least you'll have learned something. And just maybe you'll turn out to be good at it and make a few bucks instead.
 
From Opt789: "Who is he registered with? How is he compensated? Are you and everyone else with him "accredited investors"?"

Do you mean like NASD? He is registered there. It doesn't say in what capacity. It says he has passed:
2 Principal/Supervisory Exams
1 General Industry/Product Exam
2 State Securities Law Exams

I don't know what an "accredited investor is. I now have this portfolio and unfortunately don't know anything about investing. I also don't have the time I see I would need to learn enough to feel qualified to manage it myself. I've interviewed several FP and money managers and haven't liked any.

I would pay this person 20% of profits.

To cefttrader: would this be hard to find out how to do for a beginner like me? If your script was flagged, would that mean it was too late to do anything?

To sriabinop23: I think it's really important to follow your instinct so thank you for mentioning this. I've got 2 things going on. On the one hand, I do have a good feeling about this person but I don't know him so that's not enough. Because of that, I need to fill in the blanks and I'm trying to find out how to do that; what to ask, what to be aware of, what might be the pitfalls etc.

Thanks again to all.
 
From Opt789: "Who is he registered with? How is he compensated? Are you and everyone else with him "accredited investors"?"

Do you mean like NASD? He is registered there. It doesn't say in what capacity. It says he has passed:
2 Principal/Supervisory Exams
1 General Industry/Product Exam
2 State Securities Law Exams

I don't know what an "accredited investor is. I now have this portfolio and unfortunately don't know anything about investing. I also don't have the time I see I would need to learn enough to feel qualified to manage it myself. I've interviewed several FP and money managers and haven't liked any.

I would pay this person 20% of profits.

To cefttrader: would this be hard to find out how to do for a beginner like me? If your script was flagged, would that mean it was too late to do anything?

To sriabinop23: I think it's really important to follow your instinct so thank you for mentioning this. I've got 2 things going on. On the one hand, I do have a good feeling about this person but I don't know him so that's not enough. Because of that, I need to fill in the blanks and I'm trying to find out how to do that; what to ask, what to be aware of, what might be the pitfalls etc.

Thanks again to all.
 
It is not legal for someone to charge a percentage of profits to a non-accredited investor. Every state is different but most require anyone charging for investment advice to register with them. If this person is charging people now and is not registered please report them to the NASD, SEC, and your state regulatory agency. It is possible that it is a scam, but it is extremely likely that, at best, he is a well meaning but completely unqualified individual who will lose you money in the long run. Passing NASD exams because you worked at a brokerage once is meaningless.

Never let anyone manage your money without thoroughly investigating them, their attorney, and their CPA. Ask for an independently audited track record, and check that it was actually audited. Ask what state and federal agencies he is currently registered with, and ask for evidence that all his clients are accredited ($1M net worth or $200k income). If you cannot get all these things then you know not to do it.
 
opt789 said: "It is not legal for someone to charge a percentage of profits to a non-accredited investor."

Well I never knew this. This is important information to know. And the rest as well. Thank you.

So that means no one can trade on my behalf unless my net worth is over 1 mil? I was going to ask where one finds a reputable options trader but as I understand now, unless my portfolio breaks the 1 mil point, no options trading for me.
 
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