Morning Coffee: Hedge fund manager confession ‘all anyone can talk about.’ Facebook in panic mode
A 10-minute YouTube clip, described by one publication as “the hedge fund equivalent of a hostage video,” has gone viral among traders and investors, some of whom apparently thought the taped apology was a joke at first glance. It was not.
Sitting behind a large barren desk, visibly-shaken hedge fund manager James Cordier employed a host of nautical metaphors to tell his clients that the firm has lost all of their money – reportedly as much as $150 million – due to a "rogue wave" in the natural gas market that has "capsized the boat,” despite his efforts to keep “her afloat.” The president of OptionSellers, a Florida-based commodities trading adviser, Cordier referred to his clients as “family,” lamenting that the “likely” closure of the fund will prevent him from joining them on jaunts to the French Riviera and the Gold Coast of Australia.
Some digging by the Wall Street Journal suggests that the apology will likely fall on deaf ears. Following catastrophic wrong-way options bets on oil and natural-gas prices, OptionSellers isn’t just wiped out. Some investors have actually been left with a negative balance. One client told the Journal that he had $470,000 invested in the fund. Three days later, he now owes $150,000 to its clearing firm, INTL Stone, after the fund’s short position on natural gas prices proved disastrous. Institutional Investor reported that several stunned options and commodities traders and investors felt the firm may have employed a particularly risky strategy without proper hedges. “It’s all anyone in the market can talk about,” one trader told the website.
Perhaps the most stunning detail surrounding the whole ordeal is a list of answers to frequently asked questions (FAQs) the firm emailed to investors that was shared with the Journal. One question read: “Have I lost all the money in my account, then?” The answer was succinct: “Yes.”
You never want to find out that you’re not only broke but also in debt from a company’s FAQ section. Cordier’s book, “The Complete Guide to Options Selling,” likely won’t be jumping off the shelves anytime soon.
Elsewhere, Facebook went into “full panic mode” following a caustic New York Times report on how senior leadership attempted to downplay recent scandals. Former and current Facebook employees told Business Insider that current woes could make it more difficult for the firm to hire and retain talent. “This is a new kind of threat that Facebook has not experienced before…[a] crisis of confidence in the leadership,” according to one former employee.
The read of the day (no paywall) comes from Bloomberg, which reveals how a company founded by David Glass, the inspiration for the stock-scam movie “Boiler Room,” employs the use of an arcane legal document called a confession of judgment that allows lenders to seize client assets in just a day or two. Like scenes depicted in the movie, Yellowstone Capital would hire anyone who could sell, including a nightclub bouncer and fresh graduates. Piles of cash would sit on a table as inspiration. “The best brokers earned tens of thousands of dollars a month, former employees say; others slept at the office, fought, sold loose cigarettes, and stole from each other.” (Bloomberg)
Swiss asset manager GAM is planning significant cuts to its investment staff – up to 10%. (Financial News)
Deutsche Bank shares hit a new low amid concerns around its potential involvement in the money laundering scandal that has hit fellow German lender Danske Bank. (Bloomberg)
Some Merrill Lynch brokers believe that a new pay incentive structure could actually pit them against their customers. (WSJ)
Goldman Sachs is again reshuffling its securities business under new CEO David Solomon by naming Josh Glassman and Ronnie Wexler co-heads of Americas equities sales. The duo is replacing Tony Pasquariello, who has been assigned to the newly-created role of head of macro hedge fund sales. (Business Insider)
Morgan Stanley has named former Italian investment banking head Massimiliano Ruggieri as its new chief of private equity banking in Europe – a role that has remained vacant since Kamal Jabre left in May of 2017. (Financial News)
French bank Societe Generale has agreed to pay $1.34 billion to U.S. regulators to settle claims that it violated sanctions by doing business with Cuba, Sudan and Iran. SocGen has now resolved three U.S. investigations this year, totaling more than $3.6 billion in fines. The bank shook up its management team earlier this year as it looks to boost profitability. (Bloomberg)
Amazon’s decision to open a new headquarters in Queens has already had a material effect on the neighborhood. One Long Island City real estate firm sold 150 condos over four days last week. An asset management firm has already launched the NYC HQ2 Fund to invest in different types of real estate in Long Island City and surrounding neighborhoods. (WSJ)
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