Vision Financial Gets Black Eye from NFA
by Paul Springer
Commodity pool operator Vision Financial Markets generated $13.5 million in commissions in the first half of 2010, according to a National Futures Association action that alleges trades were designed to generate huge commissions with strategies unlikely to pay off for clients.
It’s the fourth NFA complaint against Vision, which previously settled actions in 1993, 1996 and 2000. The NFA also issued five complaints last year against brokers guaranteed by Vision.
The firm charged as much as $99 in commissions for a single futures contract, a steep fee at a time when discount brokers offer commissions in the $2 to $5 range, including exchange fees.
Of course it’s worth paying a commission if it’s paying for a winning trade. In this case, the NFA says, principals routinely ignored information indicating that brokers were churning retail accounts.
Clients were allegedly charged stiff fees for trades with a very low likelihood of a positive outcome, which is exactly the kind of advice the NFA has been against since the early 1990s. Back then, the regulator started issuing statements noting that a preponderance of large spreads, butterfly spreads, and deep, out-of-the-money options trades suggest an intention of trading for commissions, not client profits.
In this case, clients were enticed with the prospect of returns as high as 200%. An ad on a MySpace page trumpeted, “$1,000,000 is possible!” And it was true too, if you take that as $1 million in losses.
In 2007 and 2008, the NFA says, 92% of customers of one Vision unit lost a total of more than $1.2 million.
And new customers were not advised that existing ones routinely suffered huge losses.
One individual’s IRA account was “traded down” from around $335,000 to under $8,000.
Another customer deposited his entire $31,541 IRA account with Vision and was charged more than $11,000 in commissions on the first day of trading.
Recommended strategies used to generate the commissions included bull call option spreads with high breakeven points that made it unlikely clients would turn a profit. On average, the NFA says, clients would have had to achieve returns in excess of 30% just to break even on the fees. In some cases, the breakeven point on commissions came only when the trade generated a 70% return.
According to the NFAs account, IRA accounts were routinely solicited for risky trading. Supervisory principals allowed this solicitation, knowing that “virtually all” the IRA customers lost money.
Vision did not dispute allegations in reaching a $500,000 settlement with the NFA. The company agreed to improve its supervisory procedures – within 180 days of the settlement.
That could be a long 180 days for an IRA.
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