Commodity Futures Industry in Crisis of Authority

This from Bloomberg & Reuters News regarding the PFGBest debacle:

Peregrine Financial Group Inc., a futures brokerage with $396 million in customer funds, is being investigated for alleged missing money as founder Russell Wasendorf Sr. unsuccessfully attempted suicide.

“Some accounting irregularities are being investigated regarding company accounts,” the brokerage said in an e-mail to customers yesterday, a copy of which was obtained by Bloomberg News and confirmed by Patricia Campbell, a company spokeswoman in Chicago. Wasendorf owns the entire firm, according to the e- mail. The National Futures Association “and other officials” have frozen all customer money, the e-mail said.

“With about $400 million in so-called “segregated accounts,” less than a tenth as much as MF Global at the time of its bankruptcy, the fallout will likely be more contained. There was no indication that segregated funds had been breached, as is suspected with MF Global.” – from Reuters News.

The NFA, the self-regulator for futures brokerages, said in a notice yesterday that Peregrine reported it had about $400 million in customer-segregated funds on or about June 29, of which $225 million was on deposit at U.S. Bank. The regulator was then made aware that its chairman “may have falsified bank records” and after finding only $5 million was on deposit.

The NFA has prohibited Peregrine from soliciting or accepting new customer accounts or funds, placing trades for customers except to liquidate positions or distributing customer money.

The investigation also includes officials at the Commodity Futures Trading Commission and local authorities, according to a person familiar with the matter who asked not to be named because the details are private. Steve Adamske, a CFTC spokesman, said the agency doesn’t comment on potential investigations.

 

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