The Chicago-based company runs a business known as a commodity pool operator, AlphaMetrix LLC, which lets customers invest in futures accounts managed by professional traders. The parent company told clients in a letter yesterday that both its liabilities and those of the commodity pool operator “greatly exceed” liquid assets and that the net asset values of some pools may be affected.
The revelations are another blow to confidence in the futures industry after it suffered two of its largest failures with the collapse of MF Global Holdings Ltd. in 2011 and Peregrine Financial Group Inc. a year later. In both cases, client money went missing.
“It’s a huge deal,” said John Lothian, a futures industry professional in Chicago who’s now chief executive officer of John J. Lothian & Co., which publishes a newsletter. “We’ve been trying to restore customer confidence after MF Global and Peregrine.”
The National Futures Association, an industry-funded regulator that monitors compliance with U.S. Commodity Futures Trading Commission rules related to protection of customer money and fraud, said it hasn’t uncovered evidence that customer money at AlphaMetrix is missing.
“There has not been an enforcement action taken” against AlphaMetrix, Karen Wuertz, a senior vice president at the Chicago-based NFA, said in a phone interview today.
Commodity pools gather money from clients to invest in futures and other derivatives. They let individuals invest in derivatives, a market dominated by institutions.
AlphaMetrix Group said in the letter to investors yesterday that it has not paid some of these professional traders even though the money to do so was removed from the commodity pools.
Conor Shea, a spokesman for AlphaMetrix, said in an e- mailed statement that he couldn’t immediately comment on where the withdrawn money from the company’s commodity pools was located. AlphaMetrix LLC had $146.6 million in client assets at the end of 2012, according to an Aug. 24 government filing.
AlphaMetrix Group “has recently encountered significant cash flow issues and is working to strengthen its current financial position and continued operations,” Aleks Kins, the chief executive officer, told clients in a letter yesterday.
The document also announced that the company’s CFO had been terminated and that Arthur F. Bell Jr. & Associates LLC, an accounting firm, was hired to review AlphaMetrix’s internal controls and recordkeeping.
“At the parent level, AlphaMetrix Group LLC is working within the capital markets to improve its short-term cash flow,” Shea said in his e-mailed statement. “Investor assets remain under the operations of AlphaMetrix LLC, which are on deposit with futures commission merchants and cash custodians and traded by independent investment advisers and commodity trading advisors in accordance with the programs and strategies chosen by each investor.”
MF Global customers, who initially had about $1.6 billion of their money disappear, have been repaid about 89 percent of what they are owed by one of the two bankruptcy trustees in that case. A separate trustee for the wind-down of the brokerage unit seeks to repay them 100 percent.
Russell Wasendorf Sr., founder and CEO of futures brokerage Peregrine, was sentenced in January to 50 years in prison after being convicted of stealing more than $215 million from his customers.
A subsidiary of AlphaMetrix was hired in November by the NFA and CME Group Inc., owner of the world’s largest futures exchange, to provide a data aggregation system for monitoring futures customers’ money on deposit at banks after Wasendorf forged those records in the Peregrine case.
The NFA and CME Group always intended AlphaMetrix’s involvement with the project to end once the data aggregation component was complete, according to Wuetrz and Laurie Bischel, a CME Group spokeswoman. While AlphaMetrix is still involved, the project is expected to be completed by the end of October, Wuertz said, at which time CME Group and the NFA will operate the system on their own.