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Yesterday INTL FCStone filed a “Statement of Financial Condition” in which it disclosed within a Footnote that the company is attempting to recover over $35 million from clients of OptionSellers.com, the now defunct Tampa based hedge fund run by James Cordier and Michael Gross.

Footnote 1(p) titled “Subsequent Events,” cites the OptionSeller’s debacle for FCStone’s $35.5 million accounts receivable balance. The filing further states that OptionSellers.com clients may each owe up to $1.4 million to FCStone. This of course is in addition to the millions of dollars in principal these investors have already lost. In full, Footnote 1(p) reads as follows:

During the week ended November 16, 2018, balances in approximately 300 accounts of the FCM Division of IFF declined below required maintenance margin levels, primarily as a result of significant price fluctuations in the natural gas markets. All positions in these accounts, which were managed by Optionsellers.com Inc. (“Optionsellers”), an independent Commodities Trading Advisor (“CTA”), were liquidated in accordance with IFF’s customer agreements and obligations under market regulation standards.

Optionsellers is a CFTC-registered CTA with a CFTC Rule 4.7 exemption for “qualified eligible persons”, which indicates that the account holders meet certain minimum financial requirements and have a high level of financial sophistication and financial resources. Pursuant to the account agreements, Optionsellers, in its role as a CTA, acted with discretion over the trading in the customer accounts, while IFF acted solely as the clearing firm in its role as the FCM, at all times meeting its obligations as the FCM to these accounts.

IFF’s customer agreements obligate the account holders to reimburse IFF for any account deficits and the FCM Division continues to pursue collection of these receivables in the ordinary course of business. As of November 27, 2018, the aggregate receivable from these customer accounts, net of collections thus far, is $35.3 million, with no individual account receivable exceeding $1.4 million. The exposure to losses from these customer accounts is not yet determinable, as collection efforts are in early stages, given the timing of events that led to the receivable balances disclosed above. Depending on future collections and an assessment to be made under U.S. GAAP, any provisions for bad debts and actual losses ultimately may or may not be material to the financial results of IFF or of the Company. IFF and the Company believe that these accounts receivable balances, along with possible exposure to losses from these customer accounts, will not impact IFF’s or the Company’s ability to comply with their ongoing liquidity, capital, and regulatory requirements.

In other words, INTL FCStone is going to continue to pursue OptionSellers’ clients for “collection of these receivables in the ordinary course of business.” Clearly FCStone does not consider itself at all culpable in this matter. That is yet to be determined.

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