Twelve investors of wiped-out investment firm OptionSellers.com are seeking to recoup more than $7 million in losses from INTL FCStone Inc., the brokerage that handled their accounts.
ChapmanAlbin LLC, a Cleveland-based law firm, said it filed for arbitration with the Financial Industry Regulatory Authority on behalf of the Michigan-based investors, who lost all the funds in their accounts and now also owe money to FCStone.
The brokerage "failed to know its customers, failed to know the advisor trading its customer accounts" and didn’t have have procedures in place to protect and prevent losses in the accounts, according to Jason T. Albin, a lawyer at ChapmanAlbin.
Vanessa Mays, director of marketing at FCStone, declined to comment on the arbitration. OptionSellers also declined to comment. A spokesman for Finra said the agency doesn’t comment on pending claims.
Disastrous trading in the natural gas market prompted FCStone to liquidate about 300 client accounts managed by OptionSellers.com after their balances fell below minimum margin requirements. The brokerage said last week in a filing that customer agreements oblige account holders to reimburse it for any deficits, which stand at $35.3 million.
OptionSeller’s implosion garnered international attention after founder James Cordier posted a confessional video on YouTube in which he said extreme volatility in the natural gas market had “likely cost me my hedge fund.” Cordier has written articles on options for publications such as Futures Magazine and co-authored The Complete Guide to Option Selling.
Naked Options
"Investors have been calling daily since OptionSellers blew up their accounts," Albin said in an emailed statement. "The losses have left many devastated and terrified of the consequences of not meeting FCStone’s margin calls."
Tampa-based OptionSellers specialized in writing naked commodity options for high net-worth individuals. Options are said to be naked when they’re unhedged, and when a market moves violently against a naked short options position, it raises the prospect of almost unlimited risk.
OptionSellers’s "overconcentration" of naked natural gas calls -- options that give the holder the right to buy futures -- and crude oil puts -- options conferring the right to sell futures -- meant investors "lost big" when markets moved in opposite directions on Nov. 14, according to ChapmanAlbin.