AlphaMetrix Group LLC, marketed as a haven for investors from scammers such as Bernard Madoff, fired its chief financial officer and said it faces a cash shortfall at the corporate level.
The Chicago-based company’s businesses include a commodity pool operator, AlphaMetrix LLC, that lets customers invest in futures accounts managed by professional traders. Clients were told in an Oct. 10 letter that liabilities at the parent company “greatly exceed” liquid assets. The firm “has recently encountered significant cash flow issues and is working to strengthen its current financial position,” Aleks Kins, the chief executive officer, said in the letter. Customer assets remain on deposit with custodians and the firms where they were invested, it said in another statement.
Asked in a 2010 interview with website Hedgeweek what helped propel the company, Kins said: “The Madoff scandal pointed to the importance of independence, due diligence and checks and balances. In the months after Madoff, our managed account platform took on approximately $1 billion in customer assets.”
Madoff is serving a 150-year sentence after pleading guilty to a fraud that wiped out $17 billion of customers’ principal.
AlphaMetrix Group, which also runs a unit that helps hedge funds track investments and another that holds conferences, was hired in November by the National Futures Association and CME Group Inc. (CME:US) to shore up standards for monitoring client accounts. That followed industry failures such as the collapse of MF Global Holdings Ltd. in 2011 and Peregrine Financial Group Inc. in 2012. In both cases, customer money went missing. AlphaMetrix LLC had $146.6 million in client assets at the end of last year, according to an Aug. 24 government filing.
“They hold themselves out as a really strict firm in terms of customer protection,” John Lothian, a futures industry professional in Chicago who’s now CEO of newsletter publisher John J. Lothian & Co., said in a phone interview yesterday. AlphaMetrix vets the qualifications and performance of professional futures traders, known as commodity trading advisers, “yet they weren’t watching their own house,” said Lothian, who has been a CTA for 10 years.
In the Hedgeweek interview, Kins also highlighted the formation of AlphaMetrix Financial Investigations, which hired David Fisher, a former top official at the Chicago office of the U.S. Secret Service.
“We saw a critical need to go beyond the typical database search and provide our clients with a thorough investigation of all funds and principals involved with our platform,” Kins said in the Hedgeweek interview. “Having professionals like David, who brings decades of law enforcement and financial fraud investigations expertise, makes for much more meaningful results.”
Conor Shea, a spokesman for AlphaMetrix, didn’t immediately respond to e-mails and calls placed after business hours regarding the Kins interview.
Investors who put their money into commodity pool operators may not be afforded the same protections as customers of futures brokerages such as MF Global, Lothian said.
AlphaMetrix Group, which topped Crain’s Chicago Business’s list of the city’s fastest-growing companies in 2011, said in the Oct. 10 letter to investors that it hadn’t paid some of the professional traders it uses even though money to do so was removed from the commodity pools.
Pools like AlphaMetrix’s gather money from clients to invest in futures and other derivatives.
“At the parent level, AlphaMetrix Group LLC is working within the capital markets to improve its short-term cash flow,” AlphaMetrix Group said in an e-mailed statement yesterday. “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 advisers in accordance with the programs and strategies chosen by each investor.”
The company also disclosed that it fired CFO George Brown and hired Arthur F. Bell Jr. & Associates LLC, an accounting firm, to review its internal controls and recordkeeping.
Brown joined joined AlphaMetrix in March 2008, according to a U.S. Securities and Exchange Commission filing. Before that, he was a consultant to Nature’s Best, which sells dietary supplements, and the CFO of Old London Foods Inc., which makes crackers, according to the document.
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, doesn’t comment on potential investigations, said Karen Wuertz, a senior vice president at the Chicago-based organization.
“There has not been an enforcement action taken” against AlphaMetrix, Wuertz said in a phone interview yesterday.
Former British Prime Minister Tony Blair earned $300,000 plus expenses for speaking at the AlphaMetrix 2013 hedge fund summit at the Fontainebleau resort in Miami Beach, Florida, on Jan. 31, Bloomberg Markets magazine reported earlier this year, citing a person familiar with the matter. Blair’s spokeswoman said at the time that the fee was lower.
The firm also hosted a performance last year by CeeLo Green, a member of the band Gnarls Barkley and a judge on the television program “The Voice.”
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 for what prosecutors said was a theft of more than $215 million from customers.
A subsidiary of AlphaMetrix was hired in November by the NFA and CME Group, 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 Wuertz 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.
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