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The Incredible True Story of the Real Life ‘Trading Places’

Recently, I joined Bloomberg’s Joe Weisenthal and Tracy Alloway on thier podcast, Odd Lots, to talk about Trading Places and the Turtles:

If you have any interest at all in finance, then it’s mandatory to have seen the 1983 movie “Trading Places.” You remember, right? Two wealthy Philadelphia commodity brokers bet on whether anyone, even down-and-out Eddie Murphy, can be trained to become a successful trader. What you might not realize is that something very similar happened in real life. In this week’s Odd Lots, we examine the amazing tale of the Turtle Traders. In 1983, successful commodities speculator Richard Dennis took out a full-page ad looking for novices to train in the art of trading. His novices — who did spectacularly well — studied for just a few weeks and were dubbed his “Turtles.” Joining us to tell the story is Michael Covel, who wrote a book on the Turtles, and Jerry Parker, a former Turtle who still trades using the same technique today.

Check it out here.

Ep. 258: Megan McArdle Interview with Michael Covel on Trend Following Radio

Megan McArdle
Megan McArdle

Michael Covel speaks with Megan McArdle on today’s podcast. McArdle is a Bloomberg View columnist who writes on economics, business and public policy. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success”. She founded the blog “Asymmetrical Information”. Covel and McArdle discuss “trophy kids” and taking the monkey bars away; the idea of a regulator out there trying to guarantee our safety; why the companies that make it aren’t the ones with the best strategic plan–it’s the ones that execute (and fail well); the power of experimentation; Nobel winner Vernon Smith and experimentation; the idea of learning in crisis; how sunk costs are difficult for a large part of the population to grasp; Van Halen, errors, and M&M’s; normative error; small, manageable risks; forager morality vs. farmer morality; and a story about Kentucky Fried Chicken (KFC). Megan McArdle can be found on Twitter at @asymmetricinfo.

Listen to this episode:

$669 Million Judgement against Refco: Christopher Sugrue, Phillip Bennett, & Thomas Hackl

Refco Phillip Bennett
Phillip Bennett REFCO

Informative read:

New York (May 02, 2014, 6:27 PM ET) — The special master in the Refco Inc. securities fraud multidistrict litigation on Friday recommended that a New York federal judge enter a $669 million judgment against five defendants, for their roles in the scheme that brought down the massive commodity brokerage.

Under Ronald Hedges’ proposal, ex-Refco Group Ltd. President Tone Grant, former Refco CEO Phillip R. Bennett, former Refco Vice President Thomas Hackl [see: Acies Asset Management, S.A.], PlusFunds Group Inc. Founder and Chairman Christopher Sugrue, and Refco Group Holdings Inc. would pay $669,370,9991, plus $78,430 in interest for each day after April 29 until the judgments are entered.

While the defendants had already been judged years earlier to be liable by default, Hedges’ report focused on the damages the group owed stemming from the massive losses Sphinx and PlusFunds investors incurred.

The special master indicated that the group should be held “jointly and severally liable” for the mutlimillion- dollar judgment, leaving the individuals’ portion of the damages owed unclear.

The recommendation will now head to U.S. District Judge Jed S. Rakoff, who is overseeing proceedings for the consolidated suits.

The five defendants are all named in the sprawling litigation brought by liquidators and trustees for Sphinx Ltd., which was induced into depositing hundreds of millions of dollars into accounts that were exposed in the $1.5 billion Refco scheme.

Sphinx and PlusFunds, which helped manage its investments, lost approximately $263 million when Refco collapsed in 2005. Sphinx has since entered liquidation proceedings, and PlusFunds filed for Chapter 11 bankruptcy protection in 2006.

Many were found guilty of criminal charges related to the con, including Bennett, who is serving a 16-year sentence, and Grant, who received a 10-year term of his own.

The suits arose from revelations that Refco executives had concealed $430 million in debt through complex trading and lending schemes and shell companies, in an effort to bolster the company’s financial reports.

Refco sought Chapter 11 protection in October 2005, two months after a $583 million initial public offering, and about a year after it was purchased for $1.9 billion in a leveraged buyout by Thomas H. Lee Partners LP.

Five days before Refco sought protection, more than $312 million was transferred from the Sphinx accounts at Refco to unprotected offshore accounts. The hedge fund group ultimately settled with Refco creditors, agreeing to turn over $263 million.

Meanwhile, federal investigators believe Refco had been covering up customer trading losses by transferring securities to appear as debts owed by Refco Group Holdings Inc., a holding company controlled by former directors. Directors later hid RGHI’s receivables from auditors by transferring funds to make the debt appear to be from an entity not related to RGHI, prosecutors alleged.

The plaintiffs are represented by Lee M. Andelin, Leo R. Beus and Dennis K. Blackhurst of Beus Gilbert PLLC; and David J. Molton, Andrew S. Dash and Mason C. Simpson of Brown Rudnick LLP.

Counsel information for the defendants named in the recommendation was not immediately available Friday.

The case is In re: Refco Securities Litigation, case number 1:07-md-01902, in the U.S. District Court for the Southern District of New York.

Another article from Bloomberg, “Ex-Refco Executives Hit With $672 Million Court Judgment”:

Refco Inc.’s former Chief Executive Officer Phillip Bennett and two of his ex-colleagues were ordered to pay $671.7 million to Sphinx Providence Ltd. and its hedge funds for losses stemming from a $2.4 billion fraud at Refco.

U.S. District Judge Jed Rakoff assessed the damages, including interest, against Bennett, former senior vice president Christopher Sugrue, former executive vice president Thomas Hackl [Acies Asset Management, S.A.] and Refco Group Holdings Inc., an entity Bennett owned and used to hide more than $1 billion of debt.

Once the biggest independent U.S. futures trader, New York-based Refco collapsed in 2005, two months after raising $670 million in an initial public offering. Refco Inc., as it was known after the IPO, filed one of the biggest bankruptcies in U.S. history, after having revealed Bennett’s holding company owed it hundreds of millions of dollars.

In the ruling, which was made public today in Manhattan federal court, Rakoff followed last month’s recommendation of a special master assigned to the case. Rakoff didn’t address the special master’s conclusion that former Refco Group Ltd. President Tone Grant should also be held responsible for the damages.

Bennett is serving a 16-year prison sentence. Grant is serving 10 years.

Sugrue was chairman of PlusFunds, which filed for bankruptcy in March 2006 after the disclosure of its relationship with Refco helped spur investor withdrawals.

The details are not pretty.

Thomas Hackl
Thomas Hackl (more)

Also read the whitepaper from Edward Pekarek (Pace Law School) titled “The Due Diligence Defense and the Refco IPO”: here.

Harvard Poker Pro Says Texas Hold ‘Em Can Teach Traders to Fold

From Bloomberg:

“Someone who has made a successful living as a poker player for a few years would more likely be a good trader than someone who hasn’t,” said Aaron Brown, a 53-year-old former poker pro who is now a risk manager at AQR Capital Management LLC in Greenwich, Connecticut, which oversees $23 billion. “They know to push when they have the edge and they know how not to bust, and that’s a tough combination to find.”

Thinking in odds is a crucial point of my film.

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