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Prop shop Vega Capital London traders make $660m on negative oil
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Essex boys who made $660m in one day of oil trading face lawsuit
A small group of oil traders based on a business park in Essex who are thought to have banked $660 million in a single day this year are facing a class action t
www.thetimes.co.uk
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The only way is oil for the Essex armchair traders who hit £500m
Every Christmas, tourists nip into Claridge’s hotel in London’s Mayfair for a glimpse of its Christmas tree, decorated lavishly by fashion designers. Last year’
www.thetimes.co.uk
Every Christmas, tourists nip into Claridge’s hotel in London’s Mayfair for a glimpse of its Christmas tree, decorated lavishly by fashion designers. Last year’s effort was overseen by Christian Louboutin, who adorned the tree with gingerbread stilettos and a gold-leaf crown. Previous trees have been decorated by Italian designers Dolce & Gabbana.
On a crisp December day in 2017, there were plenty of expensive high heels tottering past the upside-down tree designed by Karl Lagerfeld — and more than a whiff of D&G aftershave.
The five-star hotel — where rooms start from about £600 — was taken over for a lavish wedding party where the magician Dynamo mingled with guests drinking champagne, wowing them with tricks.
However, these were no A-list celebrities with paparazzi in tow.
The groom was Aristos Demetriou, a 28-year-old known as Ari who works as a small-time oil trader and was barely known in City circles. That he could afford to get married at Claridge’s underlined the success Demetriou had already enjoyed playing the oil markets.
If the guests thought hiring Dynamo was a coup, it was nothing compared to what Demetriou would be able to afford now. He has enough money to ask Beyoncé, Justin Bieber and Taylor Swift to perform — and still have plenty left for a tropical honeymoon and life of luxury.
Demetriou and eight other talented traders operating from computers in their grand homes in an Essex village pocketed one of the biggest jackpots in memory as oil prices crashed in April. As the financial world panicked and big banks counted their losses, the small band of traders hit the mother lode by making complex bets on oil prices.
As futures contracts for oil prices — where traders buy or sell oil for delivery on a specific date in the future — went negative on April 20 for the first time in history, Demetriou and the other traders quietly collected life-changing sums.
By agreeing to buy one type of oil contract at the end of the day and selling another, they profited when the price went into freefall. But they hit the jackpot twice: as futures prices plunged into negative territory, the traders were reportedly paid huge sums for buying contracts they had already agreed to when prices settled at -$37.63 at the end of the day. Together, the nine banked $660m (£488m).
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Demetriou, now 31, was among the biggest winners, reportedly raking in more than $100m. He was by no means the youngest of the clique. Connor Younger, a 22-year-old, apparently with little trading experience, also made more than $100m, Bloomberg Businessweek reported. Then aged 24, Elliot Pickering, a skinny young man who reportedly still lived with his mum, is said to have earned a similar amount.
Other traders in the group linked to a small outfit called Vega Capital London, set up in 2016, also struck gold. Paul Commins, 52, who cut his teeth in the unruly futures pits of London’s International Petroleum Exchange (IPE), is reported to have pocketed about $30m. His son, George, in his early twenties, is said to have made about $8m. Chris Roase, also a veteran of the pits, reportedly took about $90m. The identities of the other three who also made millions are unknown.
As Demetriou’s lavish wedding three years ago suggests, these traders were already thriving, with a distinct talent for playing the oil markets. Despite earning the sort of sums usually seen only at big commodities traders such as Glencore, the Essex boys made little noise about their April haul. However, it was not long before their stunning success attracted some unwanted attention.
Regulators in America and London began to scrutinise the tactics deployed by the nine traders. Vega is facing a lawsuit in the US from a coin dealer who lost $92,000 in the crash, accusing the traders of “manipulation” by teaming up to push down oil prices and inflate their profits. They deny the accusations. There is no suggestion of wrongdoing.
Little is known about Vega. Commins, the eldest, is reported to be the ringleader, having earned his stripes at the IPE where he was known as “Cuddles” and, like others, wore a three-letter badge on his colourful blazer. His read “FWE”, which caused amusement as Commins’s Essex accent and inability to pronounce the letter R meant it sounded like he was saying “three”, according to Bloomberg. Commins seemingly embraced his moniker and has since set up businesses at Companies House including Fwecom Futures and Fwecom Properties.
The IPE pits closed in 2005 amid the technological trading boom, and Commins and other traders were forced to learn computer trading or change career.
Some teamed up at “prop shops”, where they worked independently under the same roof, in exchange for a small commission on trades and a fee. Commins formed his own group of traders in Essex, including Roase, known as “Dog”.
Some locals in their twenties were keen to share the success. Younger is the son of a friend of Commins.
Bloomberg claimed that rumours about Demetriou began to circulate among London’s commodity traders after their April jackpot. The gossip said he was working in a supermarket car park pushing trolleys when he saw Roase pull up in a flash car and asked how he could afford it.
Vega was set up by Adrian “Britney” Spires and Tommy Gaunt in 2016. Commins reportedly joined, bringing others with him. Gaunt stepped down as a director last year. Spires did not respond to requests for comment on LinkedIn.
Bloomberg reported that members of the group would spend much of their free time together — playing golf, watching their beloved West Ham United FC play and taking holidays in the Spanish resort of Marbella. The phrase “no carbs before Marbs” was popularised by reality TV show The Only Way is Essex, where stars jet out to Marbella, obsessed with flaunting their toned physiques and tans.
Some of the traders, and their wives or family members, are friends on Facebook, while some were co-directors of firms registered at Companies House. These include PAT Developments and PC & AD Developments, a firm co-owned by Commins and Demetriou.
The terms under which the traders operate at Vega are unclear, but lawyers for some of them said they operate independently, using Vega as a platform, and are not employees or shareholders.
Those who knew them were aware of their wealth even before their April jackpot. Flash cars including Rolls-Royces lined their drives, while expensive watches were always on show.
Commins lives in an eight-bedroom house with a swimming pool that was recently marketed for £3.6m. The local agent said the owner took it off the market, deciding it was not the right time to sell, especially given the pandemic.
Demetriou bought a £3m property around the corner in 2015. Roase splashed out almost £4m on a house on the same road in 2014. Pickering’s address on Companies House was still his mum’s house in May — when he stepped down as a director of PAT Developments, which counts Commins as a director and previously counted Demetriou. Pickering was reported to drive around in a Rolls-Royce convertible and owns an expensive-looking gold watch.
Less than 18 months after Demetriou’s wedding, Pickering, then 23, and his glamorous wife threw a Beatrix Potter-themed bash for their one-year-old daughter at an exclusive countryside wedding venue outside Harlow. Guests in the marquee in the grounds of Hubbards Hall, a 15th-century stately home, were transported into a children’s fantasy land filled with woodland creatures.
The unlikely multimillionaires could afford this lavish lifestyle thanks to their complex trades on oil futures.
Lawyers for the coin dealer allege that they would buy a certain number of barrels through instruments known as trade at settlement (TAS), then sell West Texas Intermediate (WTI) crude oil futures — the most popular way of trading the market. If the price fell as expected, not only would they not have to take delivery of physical oil, they would also pocket the difference at which they bought in. It is a risky tactic that can backfire if a big buyer suddenly emerges and the price rises.
The practice is legal provided traders do not try to drive down the price to boost profits, which Vega’s traders deny doing. They also deny working together. Other Vega traders are understood not to have traded oil futures at all that day.
In April, the gamble paid off. On that day, the last day they could be traded, futures for May delivery went berserk. The price swung from $17.73 a barrel on the day to end at -$37.63 — the first time prices had gone negative.
The traders not only made a huge profit on the spread between TAS contracts and the WTI futures, but also ended up getting paid enormous sums for the contracts they bought because the price was negative — they were being paid for the contracts they bought when the futures price ended the day at -$37.63.
After reports emerged of their haul in August, Mish International Monetary Inc, a California-based coin dealer that sold 10 crude oil futures contracts at negative prices on April 20 for a loss of $92,000, launched a lawsuit.
Lawyers for Mish allege that Vega’s traders — referred to as “John Does 1-100” in the lawsuit — “worked together to aggressively sell” futures contracts to drive down the price and push up their profit. The traders deny any market manipulation or that they joined forces to artificially depress oil prices.
Vega has moved to dismiss the class action and blamed the coronavirus pandemic for causing oil prices to crash, due to an oversupply of oil when demand for the product was low as people were ordered to stay at home during lockdowns and storage was limited.
Bloomberg said regulators at the US Commodity Futures Trading Commission (CFTC); CME Group, which owns the New York Mercantile Exchange, where the trades happened; and London’s Financial Conduct Authority (FCA) were looking at whether the trades breached rules and contributed to the unprecedented drop in the price of oil futures.
The FCA and CME declined to comment. The CFTC did not respond to requests for comment.
An interim report last month by the CFTC into the cause of the oil price plunge did not point the finger at any individuals. It did, however, point out that factors related to supply and demand, affected by the coronavirus and the lack of storage, may have influenced the collapse — backing up the argument made by the Vega traders.
CFTC’s chairman Heath P Tarbert said: “While some may have hoped for a more definitive analysis, we simply cannot provide that at this time — just as we cannot confirm or deny media reports of investigations tied to these events.”
Lawyers for a number of the traders said: “Each of our clients regularly puts his own money at risk to try to make a profit. Sometimes it works, sometimes it doesn’t. On April 20, blaring market signals — including the exchange’s repeated warnings that prices could go negative — led market participants ranging from small proprietary traders to large financial institutions to trade on the assumption that prices would drop.
“And, while no one could have predicted just how far prices would drop, each of our clients, like many others around the world, traded on his own view of the market. They strongly deny any wrongdoing and don’t intend to comment on speculation about their profits.”
Oil tankers were idle in April as demand fell
ALAMY
How the black stuff went negative — and how speculators profited
As countries around the world locked down last spring, giant tankers began to drop anchor along coastlines.
The problem? There was nowhere to store a record 160 million barrels of crude oil that had been pumped out of the ground.
Too much was being produced just as demand was plunging, as factories shut down and travel ground to a halt because of the pandemic.
Also, governments were talking about how to operate in a green future without fossil fuels.
All this contributed to the market mayhem that, on April 20, drove oil prices below zero for the first time — meaning you could, in effect, be paid to purchase and store oil.
Of course, it was not quite as straightforward as that. The price that went below zero related to oil to be delivered the following month. As the delivery deadline approached, buyers of that particular so-called futures contract naturally scarpered.
The most popular futures are for West Texas Intermediate (WTI) and are traded on the New York Mercantile Exchange. Futures contracts are leveraged, allowing traders to make big bets without actually putting down large sums of money. It is an easier way of trading oil than buying at current prices.
Futures allow traders to speculate on what the price will be at a certain date. For example, if oil currently trades at $40, but a trader believes it will increase to $50 in two months, they can use futures to engineer a profit. If the price does reach $50 in two months, they can immediately sell for a $10 profit. If it falls short of $40, the contract is worthless. Given the number of barrels involved, a trader can make a huge amount.
Airlines and other gas-guzzling industries use futures contracts as a way to hedge the prices they will need to pay, giving themselves a set cost for fuel they do not yet need to use or want to have to store.
Regulators at the Commodity Futures Trading Commission (CFTC) are still trying to establish exactly why prices went negative that day in April. Its interim report highlighted the overarching themes that caused prices to fall, but failed to give technical reasons for why they dropped below zero.
“There is not a super-simple story of what people were doing in the market that day,” said Scott Mixon, the CFTC’s acting chief economist.
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