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a. Tandrill Paid More than Fair Value When Purchasing Option
Spreads and Received Less than Fair Value When Selling Option
Spreads
Tandrill’s put option spreads resulted in losses solely
because: (1) With regard to the credit spreads, Tandrill received
less than fair value when it initiated the spreads and paid more
than fair value when it closed out such spreads; and (2) with regard
to the debit spreads, Tandrill received less than fair value when
it closed out the spreads.
The option spreads (unlike the futures transactions) were not
executed on a regulated exchange. They were over-the-counter
transactions executed through Pershing and Arbitrage Management.
Thus, there was no active trading market to assure a fair price to
all traders. Further, there was no institutional safeguard to
prevent Pershing or Arbitrage Management from charging Tandrill more
(or paying Tandrill less) than some other trader for an identical
position.
There is no evidence in the record that Tandrill bargained with
Pershing or Arbitrage Management, or engaged in “comparison
shopping”, to insure that it received fair prices, even though there
were three or four dealers that made a market in over-the-counter
Treasury bill options. Mr. Illingworth did not instruct Messrs.
Willensky and Sherman of Wilcap (who placed the actual trades) to
attempt to get the best price they could for the option spreads, nor
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