Imagine waking up to find out that everything you had invested with a major brokerage firm was gone. On top of that, your investments failed so badly that you actually owe money.
That's the reality for about 300 clients of a large Florida brokerage. Many of those investors have initiated lawsuits -- and more are still to come -- over the way the firm handled (or mishandled) its clients' money.
The firm, INTL FCStone, managed to lose $150 million in investments -- possibly more. Its clients allege that the firm didn't have the proper procedures in place to limit their risk and prevent such a disaster from taking place. The brokerage handled trades made by 300 investors through a Tampa firm known as OptionSellers.com.
Investors had been lured in, reportedly, by promises of high returns coupled with "fastidious risk management." However, neither of those two things seem to have been a reality. Instead, the brokerage appears to have ignored risks in order to sweeten its relationship with OptionSellers.com. It invested in volatile stock options in the crude oil and natural gas industries -- with disastrous results.
Essentially, the brokerage firm gambled that the natural gas prices would fall while oil prices would rise. The opposite turned out to be true, and that cost many investors more than they had in their accounts. Even if the brokerage's plan had been successful, there would have been only moderate gains -- definitely not the kind that might make such risks worthwhile.
Clients were notified that they had experienced a "catastrophic loss event" and then promptly told to pay up whatever else they owed. In some cases, that added up to hundreds of thousands of dollars. One 79-year-old investor, for example, lost $1.8 million and was told to pay an additional $571,000.
The clients are seeking redress from the brokerage firm because OptionSellers.com doesn't have the funds to repay them if their lawsuit is successful.
This sort of occurrence is one example of the things that can happen to investors when deceptive business practices are involved. It's hard to make sound financial decisions when you are being given false guarantees. If you've fallen victim to something similar, make sure that you seek experienced legal advice.