If he is trading 100 accounts in futures and stocks he will be in big trouble with both the SEC and the CFTC. He needs to do the proper registrations, for example, if he is soliciting money for trading futures contracts without being a registered person working for a registered company (i.e., pass Series 3, work for a registered CTA/CPO, get registered himself including background checks), he is in big trouble. Similarly for stocks. That “you name it part, I got a double 0 trading mandate” gets you in lots of trouble with the govt unless you do the proper legal work. C’mon, Dreary, this guy is violating at least Standard 1a in half a dozen different ways and you are supporting this?
Dreary Wrote: ------------------------------------------------------- > Say you have 100 accounts. Each account will be > invested in a different set of securities, > different sectors, some in bonds, some in various > commodities, some in yen, some in dollar, some in > London, some in Hong Kong, some in various > options, long, short, etc. At end of month, go > over the winners and shave off 15%. How many > winners you think you wil have monthly? That means he needs to have registrations in dozens of countries. When I set up my fund trading just US futures contracts, I did most of the legal work myself and it still cost me $30,000 and I still had some issues with CFTC. You can’t just hang out a shingle, ask for trading authority and start collecting incentive fees.
You are missing the point JDV. Forget the legal stuff, he could be registered offshore, or he could even have the legal work properly done as an advisor with trading authority, etc. He doesn’t need to trade different instruments, all he needs is go long half his accounts and short the other half using stocks only. By the way, I’m not supporting this, I’m asking where to report him. Come to think of it, I am not surprised he was able to get some people to sign up, as the more hip folks over here couldn’t see this! ok, some, not all.
It doesn’t matter if he’s registered offshore if he’s soliciting US entities/persons. Aside from the registration/licensing issues, you have to tell the truth in your solicitations; if you intentionally or recklessly don’t, you’ve committed fraud in connection with the purchase or sale of a security.
Say he swears he has good intentions. Say he actually has good intentions. Would you support someone running a business like this?
Dreary Wrote: ------------------------------------------------------- > You are missing the point JDV. Forget the legal > stuff, he could be registered offshore, Doesn’t matter at all. You register offshore additionally for tax reasons. > or he > could even have the legal work properly done as an > advisor with trading authority, etc. He’s not taking accredited investors. You can’t run a hedge fund for $25K accounts without doing a ton of weird stuff. > He doesn’t > need to trade different instruments, all he needs > is go long half his accounts and short the other > half using stocks only. > That would run squarely afoul of any state’s anti-fraud statutes and he would go to jail. > By the way, I’m not supporting this, I’m asking > where to report him. > I personally wouldn’t because I like the securities police even less than I like this guy. > Come to think of it, I am not surprised he was > able to get some people to sign up, as the more > hip folks over here couldn’t see this! ok, some, > not all.
Joey, what if a hedge fund declares to all its clients that starting the next day they would manage every customer’s account separately, as they believe every client deserves a close and more focused relationship than is done by other funds. They still get 20% of profits. 1) As a client, should you care? Isn’t it better for you this way? 2) As a fund manager, are you better off this way?
- As a regulator, should you be alarmed?
Dreary Wrote: ------------------------------------------------------- > Say he swears he has good intentions. Say he > actually has good intentions. Would you support > someone running a business like this? Why are you putting so much thought / time into this? He sounds like a shady dude, just report him if you feel necessary - why the need to look into his inner persona to find the motive of his actions if they are in the grey area to begin with? Is he your friend - are you trying to look out for him or something?
The fact is, even the perception of shadiness at any time (not to mention times like these) would make me not want to support anyone like this. Even if he doesn’t know he is being shady (which shady people often claim), if he started to run a business, he should know the do’s and don’ts of his industry, environment, including applicable laws, regulations, etc.
Dreary, Why would anyone want to give the money to him? I think you can manage this small amount yourself and get 15%+ returns in stocks alone in the next few years just through market movements alone. Come to think of it, 15% on $25K is $3.75K - a sum that is eminently achievable in the next 2-3 years (without doing any active stock picking) if the market recovers. I daresay that the market is so beaten down that if we do not recover even 15% in the next 2-3 years, then we are in bigger trouble than you & I could have imagined. Bottomline: Without even worrying about the legality or propriety of this guy’s actions, it seems unnecessary to even invest money through him.
Dreary Wrote: ------------------------------------------------------- > Joey, what if a hedge fund declares to all its > clients that starting the next day they would > manage every customer’s account separately, as > they believe every client deserves a close and > more focused relationship than is done by other > funds. They still get 20% of profits. > > 1) As a client, should you care? Isn’t it better > for you this way? > 2) As a fund manager, are you better off this way? I’ve managed accounts both ways. 1) As a client you care deeply, and you can’t call up a client and say that you are moving him from a fund to a managed account (because the legal agreement is different). Sometimes you have to call them up and say that you need to move them into the fund because their account has gotten too small. This requires some paper and it’s usually a step on the road to losing the account. A significant reason for managed accounts is that the client can choose his leverage. You can take a pile of cash and then give sixteen different managers trading authority on the account. You get a highly leveraged investment in many hedge funds (and get killed on fees so it’s probably stupid, but people do it anyway). Managed accounts are also important because someone is directing brokerage. If Merrill Lynch wants to put money with you, they would probably like to avoid sending brokerage business to GS. 2) As a fund manager, you probably like fund investments better. When you have managed accounts, the accounts are all over the place at every different broker in the world. In the futures world that means that you need to have give-up agreements in place so you can do one transaction and then distribute the transaction to each account. It’s a pain. You might also care about making your trades transparently (like if you took all the trades and did them at T+1 would your performance be 2/20 worse?) Also, every allocator in the world tells you the same lie “Oh, well, we will start with $3M and if things go well you’ll be at $30M in no time.” Then you do 20% for them and call them and they say, “Well, we would like to, but…” So you’re managing this stupid little account and they gripe because you are underperforming the fund investment because you can’t manage $3M like you manage $3B. In fact, they usually end up in the worst of all possible worlds getting killed on $3B slippage but losing all the $3B portfolio management and diversification. 3) If the client wants a “close and more focused relationship”, I would tell them [insert tons of simple jokes]. Actually I would find out what they really want, and I might be able to provide it to them from the fund investment. For example, I can do position and risk reports for someone’s pro rata share of the fund which gives them the same sort of transparency they would get with a managed account. If it’s liquidity, that can probably be negotiated, too (a little talk with the client that says that they will probably not be able to do as good a job liquidating as you could if the poop hits the fan might help here).
> A significant reason for managed accounts is that > the client can choose his leverage. This is a good point, and may be a legitimate reason for managing client accounts separately. However, the lesson I learned from this guy’s approach (charging 15% only if profitable) is that a manager gets more money if he manages more accounts than if he manages a single account/fund. Even the biggest HF’s lost money when things went down, and the manager got nothing. With many accounts, each taking a diffrerent strategy, the manager is basically diversifying his profit potential. Even if he does it with good intentions, he has just increased his chance of making a profit for himself. This guy could really be honest about it, but he ceratinly has a hard to resist way of making free money. Re projectplatnyc, I don’t know the guy…I just found this interesting, and the guy is not shy about his scheme, either. Look all I can say is that in the absence of strict regulations, there is a lot of free money out there.
If you are trading a bunch of different managed accounts for incentive fees, you need to trade them “parri passu” unless they are specifically managed according to different strategies. Honestly, Dreary you seem to be attracted to all kinds of fraudulent schemes to relieve your own clients of incentive fees at the expense of others just losing money. I promise that if I catch wind of you doing something like that, I will personally assist with shutting you down and prosecuting you. This kind of stuff is BS and even thinking about it gives the industry a bad name.
If more and more people start talking about how some money is really being made in the industry, we would get rid of many of the bad apples out there. How many secret insider trading happens every day? How much front running goes on every where? How much profits were made with order flows before brokers finally had to disclose that? How many cases of market makers’ fraud have we had over the years? Pretending it’s all nice and clean only exacerbate the problem. Would I vote for Obama?
ERRRRRR… Money is made in the industry by coming up with novel ways of capitalizing various risks and doing a good job managing them, not by commiting fraud.
“Money is made in the industry by coming up with novel ways of capitalizing various risks and doing a good job managing them, not by commiting fraud.” Given where we are nowadays, this is a classic Joey.
And? You can’t think that this meltdown is because of hedge fund fraud or anything like that? Edit: Anyway, I am very cranky. My wife is still working and I am f-ing hungry. Furthermore, I can’t seem to get a spoke magnet to stay on my fancy spokes which has me really peeved. Do I have to epoxy a magnet onto the spokes? How hard would it be to make a freaking bladed spoke with a tab with a hole for attaching a magnet?
Dreary Wrote: ------------------------------------------------------- > > What would his investment strategy be? > > 1) Thirty or more gullibles. > 2) Turn random events into 100% risk-free profit > every month. Excuse my complete ignorance, but how would you go about turning random events into 100% risk free profit?
30 accounts. In 15, short nat gas futures. In the other 15, go long nat gas futures. Collect incentive fees on the 15 that make money. Apologize to the other 15. Then get a call from the CFTC who do an investigation and notify local authorities that you are committing fraud. Go to jail. Read lots of books and make new friends.