Published by Tampa Bay Business Journal
Dec 6, 2018, 2:56pm EST
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Clients of the Tampa investment firm OptionSellers.com who lost millions earlier this month in a short call position on natural gas owe at least $35 million to the broker-dealer firm that executed the single trade.
INTL FCStone, an international firm with offices in Winter Haven, is likely to seek more money from OptionSellers’ clients, according to Joseph Peiffer, a New Orleans-based attorney and managing partner at Peiffer Wolf Carr & Kane. The firm, the second to come forward to represent OptionSellers’ clients, said INTL FCStone claimed in a Nov. 28 statement of financial condition that each of OptionSellers’ clients owe the brokerage firm as much as $1.4 million.
In addition, Peiffer says INTL FCStone is pressuring the investors to sign forbearance agreements that include language that would release the brokerage firm from any future claims or actions from investors.
“Investors in this situation should seek legal counsel now to protect their rights and avoid being wiped out twice. Ironically, you have a hedge fund here that didn’t hedge. Worse yet, the brokerage firm that cleared and executed these trades is now seeking to collect an additional $35 million in margin calls from the same investors that just got wiped out … and also putting the squeeze on them to relinquish their legal rights,” Peiffer said. “This has turned into a real double-whammy nightmare for investors in OptionSellers.com natural gas scheme.”
A representative from INTL FCStone did not immediately respond to calls or emails on Thursday for comment. OptionSellers has repeatedly declined to comment on the cases.
The New Orleans law firm is the second to take on clients from OptionSellers since its founder and CEO James Cordier notified its investors via email on Nov. 16 of a “catastrophic loss event” due to a short call position in natural gas that depleted its clients’ funds of hundreds of millions of dollars.
The law firms allege OptionSellers put its clients into a high-risk position in natural gas derivatives without hedging against volatility, a strategy known as a “naked” option. Industry experts say it’s one of the riskiest option strategies.
Oil prices collapsed and natural gas prices spiked on Nov. 14, creating profit opportunities for investors with risk-managed portfolios but resulted in “catastrophic losses” and “huge margin calls” to those whose portfolios were managed by OptionSellers. Cordier assumed natural gas prices would spike because of a milder winter than expected.
To date, INTL FCStone has started liquidating at least 300 clients’ accounts managed by OptionSellers when their balances fell below minimum margin requirements, according to Peiffer. In most cases, the attorney says the clients can’t pay INTL FCStone because their accounts were depleted.
On the day of the single trade, Cordier, in a 10-minute video directed toward clients, described the event as a “rogue wave” that he was unable to navigate.
Cordier is the author of “The Complete Guide to Option Selling: How Selling Options Can Lead to Stellar Returns in Bull and Bear Markets.” In May, he authored an article in Futures magazine about the perils of trading in the gas market.
INTL FCStone is ranked No. 103 in the 2018 Fortune 500 list of the largest U.S. corporations by total revenue. The company has more than 1,600 employees and reported almost $30 billion in revenue last year.
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