One of the reasons i admire and respect Victor Niederhoffer, besides his gracious offer for me to join the Old Speculators List at his junta in NYC is the fact that he never, ever gives up. In 1997 a perfect storm engulfed his trading enterprise. Beyond anyone's wildest thoughts and against all odds, his clearing firm shut him down. He fought back to trade again. Likewise, in the fall of 1998 I took a hit in my trading partnership just as Jim Cramer was hammered and backed into a corner. A Russian crisis had everything to do with U.S. growth stocks it seemed. Here is again another self-analysis on how he handled his adversity. And the futures driven, Matador Fund, by the way, is taking the cover off the ball again this year.
10/13/2005Victor Niederhoffer: A Note on Refco
Many people have told me that they heard my name mentioned in this or that medium in conjunction with the Refco debacle. I have not spoken to any media nor have I been called, except that our Treasurer was asked to comment by the Financial Times. Apparently the way it works is that reporters use Google or remember Refco and trouble and find me mentioned in 1997 along with receivables. They mention my name as a stray fact in their story. Once it hits one newspaper or Web site, all the others pick up on the connection and embellish it. My adversaries expand it, and the rumor mill starts working, constantly expanding it, until the innuendo is that I have some proximate or intimate relation with the main story.
I have found that whenever there is a big squeeze in the market -- e.g., squeezes in gold, squeezes in oil, squeezes in bonds -- our name is mentioned along with others. I haven't traded any of those markets except in lots of five or 10 once or twice in eight years. Ordinarily I like it that whenever there's a big loss someone associates it with me; it keeps my adversaries hopeful and extended. That's why I always mention at least once a week my difficulties in 1997 when my fund went under in connection with the Thailand meltdown and the closing of the US market.
That event happened eight years ago, on Oct. 27, 1997. Two days after it happened, Refco and my firm mutually resolved all claims present, past and future in a fair, straightforward manner. We received a full release from Refco on that date, and gave them a full release also. We were represented by a major law firm, Rosenman & Colin. The releases between Refco and me were scrutinized by several regulatory authorities at the time and thereafter. There were no loose ends, accommodations or outstanding receivables or debts of any kind between us, except as described below:
Refco, in the heat of the moment, liquidated my personal options positions on Oct. 28, 1997, at highly unfavorable prices. It caused a loss of some $2 million above my equity there. I agreed to pay that back to them, as part of our mutual releases, in installments over the next year as I sold off assets, and I did pay them back in full within a year.
I paid all my debts in full, and I was given no accommodations by anyone. In fact, I spent a few millions of my own to get money back for my clients, which I turned entirely over to them. (No one has ever done anything like that for me when I lost money with them.) I had a substantial net worth at the time the fund closed, and was never close to insolvency or bankruptcy as my adversaries like to imply.
I notice on Refco's balance sheet that the firm has $77 billion in assets and $66 billion in debt. I have no idea whatsoever how they have treated their transactions or errors in transactions with me or any other person or entity or hedge fund in the eight years subsequent to 1997, but I know that they negotiated a very stern and businesslike deal with us at that time., with no accommodations or loose ends of any kind.
I have had no contact with Refco for approximately seven years, except that about six years ago I phoned Phil Bennett, who always behaved very responsibly and in a most straightforward fashion in all his dealings with me, to ask how he was doing. He wasn't in and he didn't return my call.
In addition, in 1998 we had a few meetings with Refco in connection with a lawsuit we jointly brought as plaintiffs against certain parties we felt had damaged us in connection with the closing of the CME that day, which was amicably settled a few years later without further contact with them.
Neither my firm nor I have any accounts with Refco. I have not spoken with Phil Bennett for seven years. Neither I, nor my firm, nor anyone associated with me has had any loans or financial dealings of any kind with Refco in seven years.
PS. Always part of rumors about me is the hope that some dead or decaying flesh will be left exposed to eat. My firm, Manchester Trading, has served as trading adviser to the well-regarded Matador Fund for the last four years. That fund's performance is available through all the rating services, including TASS, MAR, HFN, HFR and Bloomberg.
PPS. I have not shown this letter to counsel before publishing it, nor do I intend to as I would like without equivocation to set the record straight. It's bad enough that I can't respond when my critics say that nothing I say in my blog or in my books makes sense because I don't know how to trade, as it's not cricket to refer to my performance without a full disclosure statement to qualified investors only. I have received much abuse for the performance and selection of trades of my fund during 1997. Indeed, before a firm associated with my more illustrious and much larger colleague from the University of Chicago, suffered a similar fate to mine, but did receive accommodations and assistance, I was a poster boy. But these latest rumors and innuendoes are too much to just ignore as if there is any element of truth to them.
PPPS. It's possible that I may have inadvertently been off here by a day or two on dates, or a percent or two in amount. That is counterbalanced by the very tight, fair and limited transaction that Refco negotiated with us, and that we paid in full.
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