Jacob Wohl Who Claimed Sharpe Ratio Of 7.87 Apparently On Regulator RadarMark Melin
Self-proclaimed “hedge fund guru” Jacob Wohl’s Nex Capital has apparently caught the eye of regulators. A regulatory complaint confirmation letter reviewed by ValueWalk, as well as apparent promotional materials and statements from a former employee, could point to a troubled road ahead. This all comes as Wohl might become an industry legend one way or another. On March 19 ValueWalk had highlighted the adventures of Jacob Wohl, who had received significant media attention, and we then asked “is regulatory trouble ahead.” The 18-year old wunderkind might now be headed for a direct confrontation.
Jacob Wohl alleged to hire models off Craigslist, Backpage in bid attract new investors
The operations of Nex Capital Management appear befitting for the rock-and-roll reputation of the Laurel Canyon house both Wohl and partner Matt Johnson rented.
One-time Nex Capital Management employee Eddie Bryant, confirmed by Wohl as a former commission-based employee of the firm and listed in promotional materials as a “Risk-Controller,” paints a picture of an asset management firm that runs fast and loose.
Bryant claims that Jacob Wohl would recruit Hollywood models to work with the firm, some off Craigslist and others off Backpage, a web site that contains an “adult” advertising section with titles such as “escorts, body rubs and adult jobs.”
Jacob Wohl would entice the models to attend alternative investing conferences in the Los Angeles region to flirt with potential investors, Bryant said. Once the flower attracted the bee, the model had procured the attention of a well-healed attendee, Wohl would enter the conversation and attempt to transition into an investment pitch, which was received with various degrees of initial success, according to Bryant.
In promotional videos for the Nex Immersion Program, a trading education course that costs $4,999 per week and included sleepovers, the company advertised a “Director of Fun” who said in the video: “I’m responsible to make sure everyone has a great time at the NeX Immersion Program.” Bryant said he never witnessed the woman identified as Jennifer Cole, “Director of Fun,” at Wohl’s Hollywood Hills “trading compound,” nor did he meet many of the people listed as executives at the firm during his nearly one month at the firm. He claimed many of the women who were solicited to work for Wohl did not receive payment.
Bryant said he worked in the Laurel Canyon “trading compound,” a house which was rented for nearly $5,000 per month. He worked at a living room served as a makeshift office that looked impressive but “only one of the computers worked.” The work Bryant did as “Risk-Controller” did not appear to “control” risk, with “control” being a slightly inflammatory word as risk can never be “controlled” but merely hedged.
Risk controller claims “he never did anything risk related”
Bryant said in his job as “Risk-Controller” he “never did anything risk related.” He would toil all day posting ads on Craigslist soliciting investors and he occasionally attended conferences where he would observe Jacob Wohl attempting to persuade as well.
Bryant said that when working with Jacob Wohl he overheard him make numerous claims to investors, including one that he was offered a job to work for Paul Tudor Jones, interviewing in his New York City office. Bryant claimed the 18-year old Wohl said he didn’t take the job because “he didn’t like cold weather.” Tudor Investment Corporation has an office in Greenwich, CT while Tudor Capital Europe has an office in London.
Bryant said the number of investors Jacob Wohl claimed as having invested in the fund was a moving target, ranging anywhere from 30 clients but a number that would randomly fluctuate up to 53. Assets under management were represented anywhere from $30 million to $40 million, which Bryant said appeared false and, according to a ValueWalk review of performance information, inconsistent.
7.87 Sharpe Ratio: Jacob Wohl’s stated performance was amazing and historic if accurate
Apparent promotional materials and disclosure documentation reviewed by ValueWalk, which Wohl characterized as a “rough draft,” was befitting of the hedge fund guru status Wohl sought. In fact, after nearly 16 years observing the managed futures CTA industry, never has a hedge fund produced such spectacular performance numbers over nearly a three year period to my knowledge. Reviewing the Nex Capital rough draft, ValueWalk provides insight into the scrutiny regulatory investigators might apply to Jacob Wohl and his firm.
Nex Capital claimed a Sharpe Ratio of 7.87 in a slide presentation reviewed by ValueWalk. As a point of comparison, the Sharpe Ratio of the Dow Jones Credit Suisse Managed Futures index is near 0.30 while that of the S&P 500 is 0.37. Managed futures generally has lower performance and higher volatility than investing in stocks.
Typically any Sharpe Ratio above 1.0 is considered worthy of note. It is unclear if a managed futures fund has ever attained a 7.87 Sharpe ratio over a 36 month period which, if accurate, would make Wohl an industry legend of sorts. He might achieve this status regardless, but just for different reasons….
Judging by the Nex Capital promotional materials and disclosure document, Wohl not only kept investors happy but derivatives brokers as well. For knowledgeable investors, monitoring commission to equity ratios along with margin to equity ratios are considered key insider points of analysis. With total yearly transaction costs of $465,503, the math relative to assets under management, net asset value, contracts traded daily, weekly and yearly are likely to receive significant regulatory scrutiny during the firm’s mandated performance audit.
Non-exempt managed futures CTAs are all required to submit to a performance audit, unlike an associated person (broker) making trade recommendations. CTA status is among the most scrutinized regulatory designation in the industry, as a regulatory auditing a hedge fund’s performance is viewed as a significant benefit to investors and is more clear-cut with hedge fund than a derivatives brokerage firm.
It is returns performance where Jacob Wohl is likely to be most closely scrutinized. Not only will review focus on the historic 7.87 Sharpe ratio – which the promotional materials display as a percentage, which is inaccurate nomenclature – but when win percentage and various ratios relative to performance are calculated, this, too will be required to match exactly with confirmed statements from the Nex Capital regulated derivatives brokerage.
The regulatory audit, when it occurs, will be looking not only to make certain returns performance attribution is accurate, but the assets under management is correct. Aspects of the rather unusual performance measures seen in promotional materials such as “average probability of profit,” a statistic not typically found in CTA disclosure documents, will be scrutinized on several levels. Not only is this a non-standard measure, but the formula could not be ascertained because there was no supporting documentation, another regulatory issue that will likely be highlighted during an audit.
Checking the fine print – which NFA regulators will likely examine with excruciating detail – there exists a disclaimer that oddly credits Bloomberg Financial. What is material in the citation, however, is the tucked away disclosure that hypothetical performance was used in performance calculation, a significant regulatory point of review. Hypothetical performance disclosure is required to be specifically highlighted and to highlight the source as Bloomberg will also be a component of likely review.
For his part, Jacob Wohl acknowledged the promotional materials and disclosure documents were that of Nex Capital, but claimed that they were just early drafts. “Those materials are sample rough draft materials that were in progress several months ago and ARE NOT official documents,” he said. Bryant, however, claimed Nex Capital used two sets of promotional materials and disclosure documents, one for the NFA and another for investors. Wohl did not respond to all Bryant’s charges.
“Eddie worked with us for a short time on a commission basis, and things didn’t work out so we parted ways,” Wohl told ValueWalk.
Regulators on it: Nex Capital may already be under regulatory review
An entire article could be written about the apparent disclosure protocol violations in Nex Capital’s rough draft, but that is likely to occur during the firm’s mandated National Futures Association performance audit. When will that audit occur? Judging by documentation provided to ValueWalk, Nex Capital is already officially on a regulatory radar.
James Dawson had been observing the young Jacob Wohl’s statements and he filed a formal complaint to the National Futures Association and received a confirmation on March 31, providing the complaint confirmation letter to ValueWalk for review.
The complaint along with Nex Capital’s alleged promotional materials and disclosure documents were forwarded to the National Futures Association, who did not respond to request for comment. The self-regulatory agency does not comment on ongoing investigations or actions and is typically tight-lipped about its operations.
A key component of Wohl’s fate will rest on several issues, including damage done to investors. ValueWalk reached out to someone represented as a Jacob Wohl investor but he did not responded to a request for comment.
Wohl’s punishment, if found guilty of material infractions, could range from being banned from the industry and fined or, in an extreme case, the NFA could refer the case to the Department of Justice for criminal charges. No regulatory regime is perfect, but there is a reason MF Global’s Jon Corzine didn’t want to fall under this scrutiny.
If innocent and absolved during the NFA audit, however, Jacob Wohl could be proven a performance leader. In either case, one outcome is likely. Wohl might be an industry legend, and that will be based on performance or regulatory infractions. This is a historic first either way.