The National Futures Association (NFA) announced today that it has barred Connecticut futures commission merchant Vision Financial Markets LLC and Virginia commodity trading advisor Ace Investment Strategists LLC and its principal, Yu-Dee Chang from membership.
The announcement comes nine months after the NFA charged both entities with various infractions related to Ace’s misappropriation of customer funds involved in trade allocations. Vision was charged with facilitating Ace’s actions. NFA’s decision stated that, “this activity took place over a three-year period, and that Vision was in a position to detect and stop the abuses.”
It also comes out one week after Vision announced a settlement with the NFA that “fully resolves our pending regulatory complaint, which alleged supervisory errors in Vision’s back office in connection with the allocation of trades and cash residuals for the managed accounts of (Ace).”
The June 12 letter was signed by Robert Boshnack and Howard Rothman, listed as major owners of Vision. Neither Boshnack nor Rothman were named in the comlaint.
A spokesperson for NFA stated that despite the Vision announcement the settlement was not official until today (June 20).
According to the settlement, “Vision will pay a $1.5 million fine in addition to the $2.053 million in restitution it paid to customers on March 15, 2014. Vision was also ordered to withdraw from NFA membership six months from today’s decision, though the hearing panel could extend this timeline for “good cause.”
Ace founder Yu-Dee Chang has agreed to withdraw all NFA memberships within 90 days, including CTA Ace, himself and introducing broker Chesepeake and never apply for membership in the future.
Chang also agreed that that he would send a pre-approved notices within seven days to inform all Ace and Chesapeake customers that they are ceasing business within 90 days of the date of this decision and Ace and Chesapeake shall not solicit or accept any new customers after the date of the issuance of this decision.
Chang had send out a marketing letter urging introducing brokers to aggressively raise assets for his programs shortly after these charges were filed and continued to appear on numerous business media outlets as an equity analyst. Chang has appeared on Fox Business and WBBM Newsradio780, as recently as this May, on numerous occasions after the NFA charges were filed last September.
The settlement effectively bans Chang for life from any official capacity in the futures markets.
A TALE OF TWO SETTLEMENTS
While the settlement announcements of Vision and the NFA hit on many of the same facts there are some key differences.
Vision stated that it agreed, without admitting or denying the allegations, to accept findings it violated certain NFA rules, to pay a fine of $1.5 million and to withdraw its FCM registration upon the transfer of its FCM business to a newly registered FCM under common control with Vision. It also stated that “this settlement forecloses any issue with respect to open NFA inquiries involving Vision’s activities as an (FCM).”
The NFA decision states, “…should Vision reapply for NFA membership after it has withdrawn, NFA may use the Business Conduct Committee’s Complaint and the Hearing Panel’s Decision as the sole basis for denying Vision’s application.”
The NFA decision also notes that, “Respondents neither admitted nor denied the allegations made against them in the Committee’s Complaint; however, Vision agreed to the entry of findings in this decision that it had violated NFA Compliance Rules 2-4,2-10 and 2-9(a).” Those violations include failure to observe high standards of commercial honor and just and equitable principles of trade, failure to maintain adequate records and make appropriate inquiries and failure to diligently supervise certain aspects of [it’s] operations.
The Vision announcement indicated the withdrawal of its FCM membership is tied to a transfer into a new FCM but it is clear in the decision that there is no condition on the withdrawal and there is no guarantee a new membership would be granted. AN NFA spokesperson says the NFA would conduct its usual “rigorous fitness screening procedures” on any application looking at a firm’s risk controls. ”There is quite a bit of hard work to get [an FCM] approved. It is a long disciplined vetting process,” the spokesperson says.
If the planned new FCM, High Ridge Futures LLC., does become registered, Vision’s track record will move with it. The settlement release stated, “If the firm becomes registered, NFA will ensure that any customer who inquires about High Ridge through NFA’s BASIC system will be provided with information about all of Vision’s disciplinary actions.”
The affiliation between Vision and Ace and Yu-Dee Chang has been a long one. Futures first reported on this in 2004-05 when Vision rolled out a controversial marketing plan to raise assets for Ace. It stated that introducing brokers could earn $130,000 in 90 days on a $1 million allocation. They could earn this by a very high fee structure that allowed for a 10% IB management fee (in front of the typical CTA management and incentive fees as well as other fees) or by charging $55 per roundturn. Vision was promoting Ace’s three-year track record averaging nearly 100% per year. A close look at that track record showed that Ace had only listed assets of $0.1 million during that period of strong returns.
In a January 2005 article, Futures calculated the breakeven cost of an investment in Ace using this fee structure to be roughly 25.6%. Vision later would be required by the NFA to include a breakeven analysis with all of its CTA marketing materials.
Originally Published at: http://www.futuresmag.com/2014/06/20/youre-outta-here?eNL=53a4a710bec0d9c7530004ce%3Futm_source%3DFuturesBreakingNews&utm_medium=eNL&utm_campaign=FUT_eNL&_LID=1643967&t=regulations&page=2