NSFG Pool: what now?

Devilboy, never shy to voice his opinion, wrote an exceptionally clear article about NSFG's pool program and his thoughts on its future. I think he makes some excellent points and with his permission I will publish it on my website for all to see.

The NSFG pool can not survive this fuckup. There is no point in trying to keep it alive. Forums all over are going nuts - and the consensus is that NSFG can NEVER be trusted with a pool account again. As soon as they are allowed to, 100% of funds will be withdrawn from the pool and its tainted image will stay with it forever. There can never be a pool again. This much is clear.

Paul stated that they will do whatever they can to let the pool survive, but I don't see the point. They're not open to new investors (as per agreement with FeederFund) and they stated that they wanted to focus on the managed accounts anyway. And FeederFund is supposed to be the pool provider for them anyway - let FeederFund do their job and you guys focus on trading. Paul, if you don't agree with this you need to get your head out of your ass.

With that said, I've spent a lot of time thinking about what the fair thing is to do here. To understand my reasoning, here's a quick recap of what happened. Note that my numbers are not correct - they are just guesstimates based on info that Paul provided.

What Happened?

Let's say Alice had $100 in NSFG at the end of May. In June NSFG moved accounts to the new broker. In the process they had to move all the pool funds into a bank account, and move it all from there to the new broker. Unfortunately the Danish government seized those funds and NSFG only managed to move 30% of the total amount to the new broker.

Thus Alice actually only had $30 left, even though NSFG still reported it as $100 in the hopes of getting the rest of the money back from the government. That is a liquidity problem: the money is not gone but is not immediately accessible. Unfortunately it is now clear that this will not happen - NSFG has given up on getting anything back from the government. At this point it stopped being a liquidity issue. The money is gone. Paul still uses the words 'liquidity' when talking about the accounts but that is just bullshit. When he says they are at 30% liquidity, what he really means is that Alice's $100 has turned into $30.

Over the next 3 months they continued to trade, and people made withdrawals and added money to their accounts. This is where the irreversible damage occurred. Example: Let's say Alice decided to withdraw $50 in July. NSFG paid her $50 even though her actual account balance was only $30! Where did the extra $20 come from? Accounts from the other members. Alice just managed to make off with $20 of OUR MONEY! Yes, I'm pissed off about this.

The situation is even worse if you decided to add money to your account after July. In this case the reverse happened: You just contributed 70% of your deposit to fund people like Alice who decided to withdraw.

So right now Paul has stated that they want to keep the money for 3 months, and by trading and adding funds from their personal accounts try to get the accounts back up to about 70%. At that point everyone will withdraw everything and the pool will close (regardless of what Paul thinks). However the problem with this is that it's making us hostages, we don't get a say in the thing and it does not fix the inequalities I outlined above. Thus I am strongly opposed to this course of action.

So what can they do?

Two options present themselves:

1) Mark the accounts down to their real value immediately.

Apply the 70% loss and mark Alice's account as $30. Let people decide for themselves if they want to withdraw now or give you guys a chance to make it up. You don't need Bob's money to trade back Alice's account. If Bob wants to withdraw right now, let him! If Alice wants to let you guys trade back her missing $70, give HER the choice. It's all about choice and transparency.

2) Re-calculate the true values of everyone's accounts and pay them

Go back to June and apply the 70% loss at that point in time. This fixes the irregularities I explained earlier, but unfortunately it will cost NSFG some money.

Example: Alice had $100 in May and withdrew $50 in July. Apply the 70% loss in June and she now has $30. Take out the $50 withdrawal and she has a -$20 balance. Since you'll never get Alice to pay back the $20 her account now stands at $0.

Another example: Bob had $100 in May and added another $100 in July. Apply the 70% loss in June and he has $30 left. Add $100 in July and he now has $130. Profit for the 2 months was about 10% so that makes Bob's current balance $143.

Using plan 1) Alice's current account balance will be $15 and Bob's will be $60. I'll leave it to you guys to decide which is fairer.

Problem with plan 2), of course, is that Alice's missing $20 cannot be recovered from Alice and thus I would contend that it's NSFG's responsibility to make up that difference, since it's their incompetence that caused it in the first place.

Just fix it now!

That's enough ranting from me for today. I hope NSFG gets a fucking lawyer to get the pool money back from the government. If they don't I'll assume it was because the pool is in fact illegal. This is fine for me - many of the HYIP investments I'm involved in are not properly registered so I fully understand. Just don't try to tell me it's 100% legal without going to court to get that money back.

Peace out.