Legend has it that if you wander around near to the Albert Hall, spot a large, meandering trail of slime, and follow it to its source, you will eventually find Robert Tchenguiz waddling along slowly. If you plan on doing this, be careful, as you may run into his brother Vince or, even worse, Philip Green.
Tchenguiz has been in the news lately because of his attempt to shirk off a £1.31m debt he owes to CMC Markets. For those not familiar with him, Tchenguiz is a businessman based in the UK, who made much of his money from a series of highly leveraged property investments in the 2000s, many of which came crashing down in value during the financial crisis in 2008.
At the end of 2019, he took out a substantial spread bet position – totalling 18m shares – on transport company First Group. In December of that year, R J O’Brien, the broker he’d made the bet with, was unhappy with the level of risk that Tchenguiz had taken on, and asked him to either increase his margin or cut down his position.
Tchenguiz chose to do the latter and moved some of his positions over to several other brokers – Intertrader, IG Group, ETX, Spreadex, and CMC Markets. As most readers are probably aware, in February of 2020, markets saw a massive, Covid-induced crash. First Group shares were not immune from this and they dropped by over 70% in just under a month.
Unlike most spread betters, Tchenguiz was classified as a professional client. As a result, he did not have negative balance protection and so a drop in the market meant he could be exposed to a loss greater than the margin he’d put down to place his spread bets.
This is exactly what happened when First Group shares dropped in early 2020, with Tchenguiz eventually sitting on an unrealised loss of £1.31m. When he was unable to put down the margin necessary to keep the position open, CMC liquidated his holdings and asked him to pay the £1.31m back.
Tchenguiz refused, making a couple of arguments as to why he didn’t have to. The first was that he shouldn’t have been classified as professional and lost negative balance protection. The other was that CMC failed to meet legal standards that would require the company to act in the best interest of its clients.
Reading through the court case, it’s a struggle to understand how Tchenguiz thought, other than chancing it, that he would be able to make the case that he should have been classified as a retail client. Just look at the following exchanges:
CMC lawyer: You understood perfectly well how the account was going to work.
RT: Fair enough
CMC lawyer: Well, do you agree or not?
RT: My issue is not with the account opening, my issue is with the closeout, okay? So I’ve accepted every point you’ve made on the account opening, okay. I’ve said that if I’ve signed it, I have to stand by it.
Then later on…
CMC lawyer: You were well aware that one of the protections that would be lost [by becoming a professional client] was negative balance protection?
RT: Yes
CMC lawyer: And you knew what negative balance protection meant, didn’t you?
RT: Yes
Nice one, convincing stuff there.
The other claim is more interesting but also dubious. The main arguments Tchenguiz had were that…
- CMC didn’t do a good job at getting him to put down more margin.
- That they didn’t accept an offer he made to put down margin, and so shouldn’t have made the decision to liquidate his position.
- That they then did a bad job of liquidating his position.
The first point is almost not worth bothering with because CMC’s executives couldn’t have been clearer as to what was going on and what was needed. For example, one of CMC’s sales traders sent a message to Tchenguiz saying:
At present it looks like there are 3 options:
- Fund the £1.1m outstanding on the account
- Give out the position elsewhere.
- Sell position on your instruction.
Hard to have any doubts about what was going on then.
The next point, that CMC didn’t take Tchenguiz’s offer seriously, was probably because Tchenguiz’s offer was not very serious.
When asked to deposit margin, his solution was to come up with a property in Cardiff…owned by a trust…that he was a beneficiary of. Tchenguiz’s argument was that because this offer was tabled, it was unreasonable of CMC to liquidate his position
Now imagine markets are tanking because of the first global pandemic in a century and your client has a shortfall of more than £1m in their account. Would you accept some random building in Wales, which the client doesn’t even own directly, instead of a cash payment? Probably not.
The final argument was that CMC went about liquidating the stock poorly. Some of the arguments were that CMC was somehow profiting from these trades, which makes no sense because they aim to be market neutral. Indeed, it would’ve been better for them if the stock bounced back in price.
Tchenguiz’s claim that liquidating the stocks breached some sort of duty to act in his best interests also ignores the fact that he had a legal obligation to meet margin requirements. His failure to do so meant CMC was allowed to close out his position.
Unsurprisingly then, Tchenguiz lost the case. Classy guy that he is, he claims he was ‘financially raped’ and is going to appeal the decision. He is almost certain to lose again.
Reading through the case and all the legalise involved, it’s hard not to feel frustrated. Despite all the high falutin language used, it’s clear that Robbie T is annoyed he lost and just doesn’t want to pay. It’s not much more complicated than that.
Stuff that happened: