In the midst of the PFGBest scandal, we’ve focused pretty heavily on the direct impact it’s had on clients, and the failings of the regulators. Unfortunately, what often gets lost in such coverage is the impact of such scandals on the rest of the industry. Today, we bring to you a letter from one of the managed futures programs that we’ve worked with in the past, stating that they are closing their doors following this most recent scandal and the impact it had on their business.

It is with a heavy heart that we inform you today of our decision to close Cervino Capital Management LLC in light of certain events that have occurred.

First, we have liquidated and gone flat all positions in our three trading programs: Diversified Options Strategy 1X and 2X, and the Gold Covered Call Writing program. Please note that we will not be charging fees for the July 2012 period.

Over the past seven years we have strived to make risk management a priority, with the belief that by managing risk, profits will follow provided there is a robust strategy.

We are proud to have remained true to such discipline, and have carved out positive risk adjusted performance during “arguably the greatest crisis in the history of finance capitalism,” according to the Turner Review (2009). Unfortunately, while we are prepared to continue “managing a mountain of risk,” as a CTA we are not structured to handle systemic risk of the kind underlying the MF Global and PFG Best calamities.

We are deeply saddened at the financial pain our clients have endured due to the MF Global and PFG Best bankruptcies. Regarding MF Global, we worked closely with the Commodities Customer Coalition to advocate on behalf of customers. In regards to PFG Best, we stand by to help impacted clients with completing the claims form.

With respect to the future of the futures industry, no doubt the industry is undergoing a paradigm shift. In spite of this, the need for transparent price discovery and hedging of risk will continue. Accordingly, Davide and I maintain a long-term positive outlook.

In closing, to our industry colleagues and friends in the managed futures industry, we would like to stay in contact and hope to work with you again sometime in the future.

In the meantime, please feel free to forward the attached letter to the clients you introduced to our trading programs.

Thanks and regards, Mack

Michael “Mack” Frankfurter
Managing Director, Operations
Cervino Capital Management LLC

There is a problem when you did what you set out to do, handled market movements as best as you could, and in essence did everything in your power by the book, but it’s still not enough because of circumstances well beyond your control. For all former PFGBest clients, and all those roiling in the aftermath of this fiasco, this isn’t just an inconvenience. There are lives in the balance, businesses shuttering, and retirement plans dashed. They deserve better.