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Was Fontanills really Wall Street's most respected hedge-fund manager? I asked the optionsXpress chief. "He ran a hedge fund that generated very nice returns for the years it was open," Fisher said. After saying Fontanills -- who still runs seminars under contract -- isn't an optionsXpress employee, Fisher's firm sent me 17 books by Fontanills and put me in touch with Chicago Board Options Exchange educator Jim Bittman, who said he taught similar techniques.
OptionsXpress gave me excerpts from a 2001 letter that Fontanills sent to investors in his Pinnacle Investments of America fund. These showed gains of 48% for 1998 and 83% for 1999, and a 24% loss for 2000. There was no mention of how much money was involved.
The fund's account custodian was a Salomon Smith Barney broker in Hallandale, Fla., named Jose A. Gomez -- Fontanills' friend and cousin. But e-mails from Fontanills to Gomez's boss on Sept. 10, 2001, show that Fontanills was trying to stop Smith Barney from liquidating his fund's account. "This will cause serious losses," wrote Fontanills, "and will essentially put us out of business." Neither Smith Barney nor the Options Clearing Corporation knew how to price his positions, Fontanills argued. Fontanills says he prevented big losses by moving the account.
In 2002, Smith Barney fired Gomez and the NASD then barred him for failing to provide information to investigators. (Barron's couldn't determine the nature of the inquiry.)
Fontanills ultimately closed the hedge fund, he says. "Managing money for other people is different from managing your own money," he told me in an interview.
The Bottom Line
OptionsXpress shares look overvalued after a strong run. The firm's bid to boost growth by buying a seminar group seems ill-advised, based on the record of the group's founder.
But Fontanills came to grief managing his own money, too. In June 2003, he opened a New York account with the French-owned broker Fimat. By November, according to a complaint Fimat filed in Manhattan's federal court, Fontanills had run up losses of more than $6 million. When he refused to honor margin calls, Fimat liquidated his positions and sued him for the $6 million. Fontanills again argued Fimat didn't know how to price his sophisticated options strategy or calculate the margin requirements. The dispute wound up before arbitrators, who ordered Fontanills to pay Fimat $1.8 million with costs. He paid.
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After 10 years of applying his Optionetics strategies, Fontanills' wealth wasn't what you might expect. When opening his Fimat account in 2003, he listed his net worth as $4 million. Four months earlier, his sworn financial statement in a Massachusetts divorce court represented his personal net worth as $7,150, plus another $473,500 in a trading business. His annual income, he told the court, was less than $15,000.
"Both financial statements were correct at the time they were made," Fontanills said in an e-mail last week. He has a new trading business, incorporated in the name of his current wife, called the Robo Trader Algorithmic Trading Fund.
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