The National Futures Association (NFA) filed a complaint on Sept. 11, against Vision Financial Markets.The complaint stems from Vision's long and troubling relationship with Commodity Trading Advisor and popular equity analyst Yu-Dee Chang. Chang has operated numerous option writing strategies for his CTA, ACE Investment Strategists, going back more than a decade. (ACE and Chang were charged in a separate but related complaint).
Vision associated persons Steven Silver (also a principal of Vision at the time) and Bruce Newman were also charged in the complaint. Vision, Silver and Newman are charged with three counts of violating NFA rules including failure to supervise, failure to keep adequate records and failure to observe high standard of commercial honor and just and equitable principles of trade.
The complaint points out that Vision "has had a long history of supervisory issues during its tenure as an NFA Member," and notes that it has been the subject of four prior NFA Complaints - three of which charged the firm with failing to diligently supervise various aspects of the firm's operations.
The respondents in this complaint could face expulsion or suspension for a specified period from NFA membership; bar or suspension for a specified period from association with an NFA Member; censure or reprimand or a monetary fine not to exceed $250,000 for each violation found.
I was introduced to Vision's aggressive strategy for raising assets for options writing CTAs nearly a decade ago. Justin Boshnack, son of Vision founder Bob Boshnack (who currently has no administrative responsibilities) had called me to pitch a story on the success of Vision's brokers. He told me that many of their brokers were making in excess of $1 million a year by raising assets for various CTAs. I was at Futures Magazine at the time and I recall thinking that he did not understand the nature of our publication.
Futures covers all things related to the futures industry but a story on successful asset raising absent any context of a trading strategy is something we didn't do. The younger Boshnack was bragging about how much money their brokers were making as if we were some internal broker newsletter. There was no mention of whether the investments they were selling was making any money for customers. None. I recall thinking, 'if we did do a story on this it wouldn't be positive.'
Shortly later a CTA who I had profiled recently had sent me some disturbing offering documents from Vision. The CTA was also an introducing broker (IB) and the documents were touting excessive upfront fees an IB could charge by raising assets for ACE and Yu-Dee Chang. The plan involved charging up to a 10% load fee (they called it an IB Management fee) in front of the typical 2 and 20 structure or a $55 round turn fee.
There were additional fees in there as well. The offering material touted how an IB could earn more than six figures in 90 days on the first million he raises. My friend was appalled and thought the offer may have run afoul of NFA rules. I agreed and before I did anything else, forwarded the material to the Commodity Futures Trading Commission (CFTC) and NFA. I also discussed this with NFA Chief Dan Roth and CFTC Chairman James Newsome who were in town at the time.
At the time, 2004, I went about calling all my old floor contacts and to a man (and woman) they all had disturbing stories regarding Vision and how they operated. I also spoke to many managers who refused to allow Vision to raise assets for them because of their fees. They already had been sanctioned by the NFA a couple of times. As for Yu-Dee Chang, his track record was very impressive but odd. He had roughly a three-year track record averaging around 100% a year but listed nearly no ($0.1 million) assets under management. This seemed very odd but it was this track record Vision was promoting to raise upfront fees. Load fees are extremely odd in the CTA world where CTAs usually earn through incentive fees. The one or two percent management fee CTAs typically charge helps keep the lights on but they make their money when they produce returns for customers, not beforehand.
I don't believe any charges were filed as a result of that offering material or the story I wrote but soon after Vision was required to include a breakeven analysis in future offering material. A breakeven analysis shows you how much money a manager needs to make to cover up front fees and commissions before a customers would make a profit. I reported on Vision's approach to raising assets for ACE in a story in Futures and did my own breakeven analysis on the ACE investment based on Vision's offering material and information on ACE in the Barclay CTA database. Efficient programs with no management fees can keep breakeven to a couple of percent and anything above say 5% is getting up there. The breakeven analysis I did on ACE came to 25.60%. No one is that good.
But the strategy worked as ACE went from no assets under management to more than $100 million very quickly. And based on that structure, they made their money and didn't have to wait on potential incentive fees, which is good because ACE's performance did not come close to its first few years and then it imploded in 2008 with many others aggressive option writers. Chang still lists multiple programs under the ACE banner though their long-term track records are very weak -- more than half have an overall negative return-- including the oldest program, which touts a compound annual return of 8.1% with a worst drawdown of 77.34%. I am sure the programs have made him, Vision and brokers raising assets for him plenty of money over the years.
Several years ago a broker at Vision told me they abandoned that controversial IB management fee structure and had been working on restoring their reputation, which he acknowledged was not the best. I also spoke to Silver at several events and the firm appeared to be turning a new leaf. Vision did, however, maintain their relationship with ACE and a person close to the situation confided in me a year ago that the situation with ACE was still troublesome.
A couple of years ago I was disturbed to see that The Traders Expo was having Yu-Dee Chang speaking at a couple of its events and I let the NFA know about it.
The recent charges are not related to the controversial fee heavy promotion from nearly a decade ago but are disturbing just the same. More disturbing is the fact that with so many people in the industry with knowledge of this, ACE is still operating. The various ACE programs listed in the Barclay database are managing more that $40 million. The original program topped out at $127 million before the 2008 reversal.
And Mr. Chang is a sought after speaker. In the last few weeks he has appeared on Fox Business Network and CNBC. It is unbelievable that given his track record -- based on the fee structures he has promoted and his actual management performance -- that he is viewed as a sage in some quarters.