On the heels of a National Futures Association (NFA) action against AlphaMetrix LLC on Monday, at least one group of commodity trading advisors (CTAs) is organizing to ensure their voice is heard, according to Patrick Daugherty, partner at Foley & Lardner LLC.
Daugherty’s firm organized a call today for a number of CTAs to “discuss with them the situation as we understand it from public announcements and our own research, and to advise them of possible courses of actions – their rights,” he says.
Although he could not name any CTAs on the call, Daugherty did say “some of the larger and some of the smaller trading advisors in the world were on that call.”
Over the last week AlphaMetrix has admitted to cash-flow problems, and an AlphaMetrix employee has confirmed that the company is looking for a buyer or buyers. “It’s hard for a firm to sustain that kind of hit and continue business as usual,” Daugherty says. “We believe the company’s creditors should be concerned.”
He went on to explain that because CTAs sell their “financial acumen” to the AlphaMetrix pool they contract with, CTAs likely would be considered creditors in the event AlphaMetrix could not meet its financial obligations.
The purpose of the call today was to make the preliminary steps necessary to organize disparate CTAs. “The main thing is that there is strength in numbers and that any individual creditor may or may not get attention, but a group will,” Daugherty says.
Although the NFA issued a Member Responsibility Action (MRA) against AlphaMetrix on Monday, Daugherty says that action did little to protect CTAs. “The NFA action taken on Monday was devised to help investors in these pools; it was not designed to help the creditors. The CTAs were not helped by the NFA. Investors in AM pools are being helped by the NFA – that’s its primary role, but the NFA is not charged with protecting the creditors of a pool,” he says.
After customer money was found to be missing at MF Global in its 2011 bankruptcy, the Commodity Customer Coalition (CCC) was formed to fight for investors interests and to ensure investor money was returned. Although there are similarities, Daugherty was sure to differentiate what his firm is doing. “This is not a CCC engagement or enterprise, it is a much smaller and different group of professionals, but there are common themes here,” he says.
Once recognized by Crain’s Chicago Business as a top entrepreneur, founder and CEO, Aleks Kins issued a letter on Oct. 10 admitting that the firm he launched , Alpha Metrix, was experiencing cash-flow difficulties. Managers and others affiliated with the platform say that the slow payments go as far back as 2009, perhaps indicating that the firm was never as healthy as perceived.
At one point the firm boasted in excess of 100 employees, but it is unclear how many of them remain on staff. George Brown, the chief financial officer, was removed from his post, as explained in the Oct. 10 letter, while Mikus Kins and Geoff Marcus, both senior staffers, departed in mid-October.
Founded in 2005, the firm was the brainchild of Kins and the platform was supposed to give investors access to fully vetted funds and, according to the website, “achieve a higher level of verified trust.” Touting its high levels of due diligence the firm hired former Secret Service members and formed AlphaMetrix Financial Investigations, which performed comprehensive background investigations on traders and advisers wishing to join the platform.
In 2010, the firm held its first summit at the Fountainebleu in Miami, with educational speakers and speed-dating for managers and investors. Harry Markopolis, best noted for his attempts to get the U.S. Securities and Exchange Commission to investigate Bernie Madoff, was the keynote speaker, discussing the red flags surrounding the Madoff fraud.
Subsequent conferences dropped the educational seminars and focused on speed dating and high-profile speakers such as Tony Blair. Weekend networking events were sponsored by AlphaMetrix including water sports at the Monte Carlo Beach Club; “Crepes and Croquet” at the former home of Karl Lagerfeld; and spouse packages that included South Beach (Miami) walking tours, spa treatments and champagne cabanas.
Although his firm has regular clients it would advise in situations like this, Daugherty reiterated there is strength in numbers. “[The CTAs’] primary interest is making sure their investors do not lose money. They have fees at stake, but they care more that their investors are taken care of,” he says.