In 1987, Robbins Trading Company - a commodity futures brokerage firm -
sponsored a trading contest titled, rather immodestly, The World Cup of
Futures Trading. To enter this competition, a contestant had to open a
$10,000 account with Robbins. The prize was to go to whoever made the
most money during teh course of a year's trading. In other worlds, REAL
MONEY would be traded.
The prize was incidental. The real attraction for any trader entering
a trading contest is the exposure he or she will get from winning the
contest, and the investment dollars such a victory will attract. The
principal attraction for the brokerage firm sponsoring a trading contest
is the expectation that the investment money pulled in by the publicity
will be traded through that firm. One of the entrants to the contest
was Larry Williams.
During the course of 1987, while the contest was still running, Robbins
Trading Company began taking out full-page advertisements in Futures, a
monthly magazine devoted to commodities trading. Understandably,
Robbins wanted to capitalize on the publicity the contest was
generating. "Managed Accounts by the World Cup Trading Team" proclaimed
their ad copy, which showed a quartet of well-known commodity advisors,
presumably the team in question. There were a number of problems with
this solictation that would eventually land Robbins Trading Company in
hot water with the NFA - an industry watchdog organization, one of whose
mandates is to scrutinize promotional material put out by its members.
The first problem with the advertisement was that the World Cup of
Futures Trading was billed as a contest for individuals, not teams, so
that the concept of a World Cup Trading Team didn't make sense. Second,
while the contest was still under way, Larry Williams, a contestant, was
already identified as a member of this World Cup Trading Team. What
could it mean? Was Williams' victory being taken for granted before the
contest was half over? He certainly had got off to a flying start. In
its May 1987 issues, Futures Magazine, the principal conduit for the
advertising of the trading contest, informed its readers:
First quarter results for the World Cup of Futures Trading, for
example, are teh most spectacular in the event's five year history, says
Joel Robbins, President of Robbins Trading Co., sponsor for the
competition. Current leader Larry Williams began trading the initial
$10,000 account in stock index and bond contracts in January, and had
increased it to $200,000 by the end of March.<< (excerpt from the
magazine)
Williams went on to make over $1 million by the end of the contest, and
won it by a country mile, his nearest challenger amassing a "paltry"
$40,000. As soon as the contest ended, Robbins Trading Co. took out
more full-page advertisements in Futures, this time featuring Larry
Williams' portrait, and with this solicitation to prospective investors:
"Managed Account Trading utilizing Larry Williams' World Cup Approach To
Futures Trading." Simultaneously, commercials saying the same thing hit
the airwaves on FNN, the then Financial News Network.
The National Futures Association was not amused. There were some
bothersome omissions in the disclosure statements supporting the
solicitations, and on August 10, 1988, the NFA issued a formal complaint
against both Robbins Trading Co. and Larry Williams. It seems the NFA
had got wind of some odd discrepencies between Williams' personal
trading performance and the performance enjoyed by his investors during
the period the World Cup contest was running.
Commodity Trading Advisors (CTAs) registered with the NFA are obliged
to disclose their actual trading records to the NFA when soliciting
public funds through promotions. A large part of the NFA's complaint
had to do with whether Williams ought to segregate the results of his
personal trading from the results of the accounts he was handling for
others. Williams claimed in his defense that the NFA's guidelines were
not clear, and he may well have had a point. One disturbing fact,
however, was not in dispute. During the first quarter of 1987, when his
contest account was appreciating from $10,000 to $200,000, Williams'
managed accounts were losing and losing big. From the Findings and
Conclusions of the NFA:
There is no question that Mr. William's personal trading accounts had
a material effect upon his composite trading performance. The record
reflects that for the first quarter of 1987, Mr. William's composite
performance showed a loss of $6,122,281, while at the same time, Mr.
William's personal account experienced a gain of $902,599. The Panel
finds the fact that Mr. Williams was making significant gains while his
managed customer accounts were suffering considerable losses would be
amaterial fact which a potential customer would need to know in order to
make a fully reasoned decision.
On December 19, 1989, the NFA imposed fines of $35,000 on both Williams
and Robbins Trading Co. Both fines were appealed with some success. On
June 8, 1990, Robbins Trading Co. consented to a finding that it had
violated an NFA Compliance Rule governing risk disclosure in its
promotional material and agreed to pay a reduced fine of $15,000. On
the same date, the Appeals Committee agreed to make no findings against
Mr. Williams, but imposed a $13,000 fine. With these minor slaps on the
wrist, the affair seems to have rest - as far as the NFA was concerned.
The ongoing problems with the NFA did little to dampen the promotional
hype surrounding Williams' World Cup Championship Victory. In July
1988, the Larry Williams Financial Strategy Fund was launched, followed
in March 1989 by the World Cup Championship Fund, managed by Larry
Williams, Jake Bernstein and two other members of the self-proclaimed
World Cup Trading Team.
In October, 1989, Futures magazine issued a terse announcement: the
Larry Williams Financial Strategy Fund was no more. The heavyweight
champion of futures trading, who had turned $10,000 into $1 million in
1987 trading his own real money, had found the going tougher when it
came to trading customers' real money. In fact, he had suffered one of
the fastest knockouts in commodity fund history, losing more than 50% of
his client's equity in barely one year. It was a virtuoso performance
in consistency, with scarcely an uptick to interrupt a relentless string
of losing months.
And what of the World Cup Championship Fund, launched with such
ballyhoo in March, 1989? After scarcely more than a year had passed,
this fund, too, had lost more than half of its original equity. In Mary
1990, the bell tolled againand the World Cup Championship Fund slipped
quietly beneath the waves to join its predecessor, Larry Williams
Financial Strategy, on the ocean floor. No heralds marched. No horns
sounded. No trumpets blared.