Subject: Commodities Trading
To: johnny at charm.net
Fr: Alex Alberstadt
Date: Tue, 15 Jul 2003 12:13:51 -0400

Mr. Jacobs (sorry for the earlier misspelling):

I read your initial post as referring to an investigation by the Ark AG's
office of the FCM (the commodities broker) involved in Hillary's investment
account.  You alleged a QPQ -- an investigation of this broker was
suppressed and Hilary made $100k and that to you is a QPQ.  This would not
have been taking place while Bill was President.   I think the broker had
already been previously investigated and disciplined and the later
investigation occurred when Bill was Gov.

My point is, if what you initially alleged ever actually occurred, it would
have been laid out for our consumption, either by JW or by Ken Starr. If
Bill couldn't keep an investigator from finding people to talk about Paula
Jones, what makes you think that he could cover up official activity (i.e.,
an Ark AG investigation)?  But all I can find are news reports, nothing
involving a discipline case.

The commodities trading dispute:  the facts are variously reported.
Basically, Ms. Clinton opened an account with an initial investment of
$1,000.  Like many customers, her account included a margin component, that
is, you borrow against your balance with an agreement to pay interest on
the borrowed amount and secured by other holdings.  You then "leverage"
your investment, buy contracts and hope the price of the underlying
commodity goes up, then sell your contracts and make money on the
difference. (this is a simple strategy; there are other more convoluted
ones; you could also sell contracts, hope the price will fall and that you
can cover the sale at a profit before the date on which the contracts have
to be delivered, or extend the date at a lower price than buying to cover).
Volatility on the futures market can be a very significant component.  If
you are a commodities broker, you want clients dealing in the same types of
commodities and you want them all to be "unsolicited" which some brokers
think means the client pulls the trigger, i.e., "Buy 50 contracts today,
okay"; "Okay, do it" and they mark the trade unsolicited (this is the same
in the stock market; technically, if the broker is suggesting the trade it
should be marked solicited). The particular broker/FCM, Refco, was a high
roller in cattle.  They covered somewhere between 25 and 40% of the market.
For Hillary and other clients, and its not clear what the basis was, they
didn't issue margin calls. The key wrongdoing was that in June, she was
down significantly in the account, did not ante up (because they did not
issue a call when they should have) and by July of that year, she was up to
about a $92k gross profit.  She quit trading the account actively in July.
Why?  Who knows  -- maybe she realized something fishy was going on, maybe
the volatility of June killed her, maybe she realized that as quickly as
she was up she could be back down.  Refco was investigated by state and
federal authorities numerous times and paid big fines for trading
practices. As is usually the case, the clients who benefitted from faulty
back office practices were not charged with anything and did not disgorge
profits.  In my experience, this is the usual outcome in an investigation
-- customers are not the target.    Margin violations do not always mean
favoring a customer.  More often if such things occur, its a systematic
failure so that you let it go for all customers.

What other types of inappropriate things occurred? If you believe the news
reports, bunched trades (probably helped Hillary's account); time stamping
changes (probably helped all accounts); trade allocation errors (no
reasonable allocation basis was disclosed and followed; same day trading
strategies were not allocated fairly but tended to be given to large
accounts; trades not allocated at the time of trade but at end of day)
(probably helped all accounts that profited); but the most significant
charge, to which I don't see any hard evidence, was that they manipulated
the market solely to make the stock move up and down.  This means they
could take commissions on trades executed by their clients and others
trying to cover in the volatility.  Customers usually are the victims of
this via commission costs.

Nothing of the type alleged usually involves a customer unless the customer
is an active participant in the trade strategy.  In addition, unless the
customer is in the office, there is no way they are tagged with any
liability for the back office activities.  Thus, there is really nothing
strange about not going after Hillary in this mess.

These practices can rise to the level of criminal charges but apparently
did not.

I could not find the alleged "QPQ" but one of the wrongdoers in subsequent
matters was an exec at Tyson, and I think Tyson was a big supporter of the
Ark DNC.   I'm sure Mr. Jacobs can find a theory there.

AKA A"87