Quote from marketsurfer:
no, dog. i just will not respond to a partial statement taken from a dubious source. the NFA situation should be easy to locate--- having some issues finding anything?? LOL!
surfer
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 NFAâs Findings and Conclusion, as quoted in William Gallacherâs book âWinner Take All.â
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:
âThere 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.â
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. Gallacherâs quoted reference was valid, let us proceed. Howeverâ¦
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, Larryâs composite performance showed a loss of $6,122,281 while his personal accounts experienced a gain of $902,599, as outlined in the NFAâs
Findings and Conclusions.
2. As explained in a fair amount of detail in William Gallacherâs 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 armâs length. (Heck, they even got fined together.)
3. Larryâs 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 NFAâs 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. Enronâs 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 âotherâ 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-armâs-length relationship with a broker who is no stranger to the NFA. So, letâs 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 weâre 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 âtraders.â The 1988 fund lost more than 50% of its clientsâ 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. Wouldnât it be nice if he entered it again just to reassure us that he has still âgot it?â 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 âtoo much?â We can only speculate under the scenario of our proposed hypothesis.
END OF PART 1
