PFGBEST Update: Dear CME

Dear CME,

We understand that you’re probably dealing with a lot right now. Coincidentally, so are we. Actually, so is the rest of the industry. Despite calls for the institution of a SIPC-like program for futures investors from advocates across the industry after MFGlobal, no such fund was established. Now, as we all reel from the revelations out of Cedar Falls, we find ourselves, once more, wondering how things could go so wrong – and without a safety net for clients.

In the bankruptcy filings presented by PFGBest, they listed a rather broad range of assets and liabilities, and as we well know, these proceedings can drag on. And on. And on. The one point of solace in this situation – at least, relative to MFGlobal – is that the amount of funds missing is much smaller at $220mm, and the company’s overall size is dwarfed by the spectre of MFGlobal’s sprawl. The hope is that these circumstances result in a speedier return of available funds to make clients whole, especially since the proceedings appear to be moving forward under commodity law instead of the SIPC, meaning there is no confusion over who gets the money in cusrtomer segregated accounts and who is first in line for disbursement of company assets.

That’s the hope, at least. To be fair, we’re beginning to lean towards optimism on the matter. The CCC, fresh off of their organizing efforts during MFGlobal, is already mobilizing to defend your clients in court, and the judges seem just as angry as the rest of us about how this situation unfolded. But even so, your clients are still floundering, waiting for their money. In the wake of MFGlobal, confidence in the system that, for years, protected futures investors’ assets, has been decimated. With every passing day without client reimbursement, that confidence wanes even further.

News came out yesterday that you will be making the Farmers Insurance Fund available to qualifying victims of the PFGBest scandal. This is definitely a step in the right direction, but its impact may be limited. After all, the reimbursement is for only $25k per account, and is only available to a small group of market participants. Those who are likely more active in the markets – and thus the bulk of your profit base – won’t be able to benefit from the move, and even if they did, the reimbursement would be a drop in the bucket compared to their account balances.

Here’s the thing- $220 million is missing. With MFGlobal, the loss was at $1.6 billion. There was no way you could be expected to cover that, of course, but it didn’t stop the media and industry from demanding it, and criticizing you for not doing so. You have an opportunity here to make clients whole, without anywhere near the cost of the MFGlobal scandal. In doing so, you become champions of the industry, and send a message to futures investors that, even with reforms necessary at the regulatory bodies, the industry as a whole has their back. It’s not a giveaway, either. You don’t need to take a hyper optimistic view of the liabilities and assets of PFGBest to see that you’d most likely be able to recoup the money in the bankruptcy proceedings. In the meantime, you take the industry off pause, and show investors – your clients – that you’re in their corner.

This isn’t just about a potential slow down in volume and market participation in the short term – it’s about long-term confidence in the markets and the safety of the funds we put in it. We’ve got a long road ahead of us, but you can help the journey along. We hope you’ll do the right thing.


Beleaguered Investors Everywhere


  1. AGREE 1000%
    please make sure this gets to CME BOARD ; every us senator (esp grissly from Iowa )and congressmen and of course the media!!!!!

  2. Couldnt agree more, hope someone at CME comes to the rescue of what’s left of an industry that has been hit by a round of scoundrels, as a new CTA and a market participant for more than 20 years I have myself started to get very tired and sick of scandal after scandal and feeling completely unprotected by regulators who seem to be either understaffed, underfunded, or sadly utterly incompetent to say the least, it is obvious that the structure and system is just not working and the only thing that can save this industry that has been outperforming but always misunderstood by most investors is to restore clients funds and show there is someone covering our backs from system failures, and make smart and fast reforms to ensure no one can mess with investors capital, 200mm is a very small price to pay for an industry that could go under if no one in the position to do the right thing turns their back on it.

    Wake up America!

  3. In my honest opinion, I believe that its really naive of the people at Attain Capital that CME is going to put up a insurance fund to cover the clients of PFG just simply because of the small magnitude of funds missing at PFG. What matters is not so much the size of the losses but rather the fact that if the CME starts a precedence, every brokerage firm is going to start abusing customer funds and CME will be on hook for every single dime of loss incurred by customers. In additional, it would not be fair to clients of MF global as they have as much right to be covered by an insurance fund as much as customers of PFG so I would dare to say that the CME would not want to take such a risk and put themselves in such a situation. The sad reality is that despite the confidence of the futures industry being shaken, everybody knows deep down in their conscience that if the regulators do not do anything, there is nothing much we can do and life goes on as nobody is going to stop trading just because of this incident. The only difference is that everyone will leave less funds in their brokerage accounts and this is of course going to affect the brokerage firms’ business.

  4. Attain, I am starting to like you guys more and more each day. I think you are becoming a strong influence for this industry. I hope that the CME makes the right decisions to save the momentum that this industry has been building. Otherwise, if it is speculative just to open a futures account in the US, this industry will become a joke in the investing world and would liken itself to on line poker. I hope there is more integrity here for Futures investors, even if they are not Farmers. Everybody who is providing liquidity to these markets deserves the same respect.

    I believe that the CME has to make a stand for the industry or stand by the way side. It is your choice. It is your industry. Make the PFG customers whole, and make a president, and make sure this is not possible again.

    Dave B

  5. What about MF Global clients? Is it fair only PFG clients are made whole while MF Global clients are left hanging dry? Do you think that the CME will put themselves in such a situation and risk being labelled as biased? I don’t think so! As a former MF Global client, I have only one advice for everyone who is involved in the futures market: Leave the MINIMAL amount of money in your brokerage account which sufficient to cover drawdowns and margin requirements! Put the rest of your funds in a current account in a bank insured by the FDIC. Stop giving brokerage firms free leverage over your hard-earned money!

  6. We’ll have to agree to disagree on this one. If anything, the small amount increases the likelihood of action, in our opinion- or at least, should- because it’s a much lower risk for them to take with far higher stakes.

    Realistically, the CME never could have taken on $1.6 billion during MFGlobal, whereas the smaller amount here is far more manageable, especially if they can recoup the bulk of their losses in the bankruptcy proceedings.

    As far as the stakes are concerned, with MFGlobal, there was this sense that it was an extreme situation, whereas PFGBest seems to have convinced people of a larger problem, requiring action to bolster confidence as this point exactly is being used as a rallying call for people telling everyone they shouldn’t touch the futures market with a ten foot pole. The CME already estimated losses from the MFGlobal scandal; what will they be here if confidence wanes on the belief that there really is no one looking out for clients?

    You are absolutely right, however, that other reforms need to be made. This measure alone is not sufficient, which is why we’ve advocated for the creation of an insurance fund for the industry going forward, alongside a myriad of other initiatives (check out the other posts). In fact, we advocated for it after MFGlobal, too. Here’s hoping it actually happens now.

  7. I have to disagree with you on that. Its not a matter of how low a risk and how manageable the small amount of missing is. Its more to do with the fact that the CME cannot be responsible for the fraud and fault of an individual. The CME is not a government entity and is not responsible for upholding the integrity of the futures industry. This responsibility lies with the government regulators to do that. If there is going to be an insurance fund, it needs to come with contributions from all participants in the futures industry including brokerage firms , but this is never going to happen as nobody wants to be on hook for the fault and fraud of other individuals. In additional, given that this year is an election year, the chances of that happening is close to NIL as the government does not want to be labelled by the American people as guarantors of what the public perceives as “Speculators in the futures industry” and “People who are out to manipulate the prices of commodities in the futures market”.

  8. James is making excellent points. A CME-led rescue of PFG customers does create the risk of moral hazard. It also glosses over the very real issue of whether the CME board can act in a way that may serve the strategic interests of the industry – but runs counter to the interests of CME shareholders. Any offer to pay in full PFG claims would almost certainly require a shareholder vote. But I think there is a real difference here with MF Global. Based on pricing in the secondary market for MF Global claims, MF Global clients can expect close to full recovery. Good for them. Absent help, PFG customers may be lucky to get 50 cents. PFG clients are almost all retail. Additionally, the CFTC very emphatically stated in January 2012 that seg funds were secure. The CME can stand in the PFG bankruptcy in the place of PFG clients with the understanding that reforms (SIPC-like insurance fund; central collateral repository, etc.) will make future CME intervention unnecessary.

  9. My opinion is that CVME Group should help PFG clients get their money back because It is because of us that they exist. I thought that my money was safe in a segregated account????I think they are many responsabilities in this case…Me Wessendorf, the bank were the client money was supposed to be, the NFA, the CFTC…..and probably many others complicities….How a single personr is able to move 200 millons iust like that….
    Now who can tell us how much was supposed to be and how much is disponible immediately? I heard comments saying that from the 400 millions half is missing…If this is correct they should immediately liberate 50% of the account for us to be able to work!!!!! We need to work, to eat; to pay rent etc….. and then find the responsible and make they pay…
    Will they check and freeze all the bank accoounts of PFG, of the owner, of the owner family and friends and check also in the cayman islands, the bahamas , switzerland and God knows where….We need our money back.
    How do you want people in the industry feel safe????
    It is more than urgent that they put in place regulations for the survivance of the futures industry ….
    I have to stop here because I am so mad I could write for ever.

  10. We all want the same thing. Naively I was led to believe there was the same insurance here as in my stock investments, meaning FDIC, SPIC and even Lloyds of London in extreme cases. This was not suggested to me by Attain.

    Going forward the small firms should work collegially to provide the same insurances that the large brokerages can provide on their own.

    And the government is the last resort to make segregated accounts whole here if the CME does not, because their regulators were hopelessly incompetent. That, it seems to me, is the rallying point for all of us, election year or not. “Together we can” as the little ships at Dunkirk proved.

  11. Sorry if this is somewhat off-topic but I’d be interested in your thoughts on Wasendorf’s motivations in so far as he:

    (1) suddenly married his fiancé in Vegas on June 30, only two weeks prior to their previously scheduled July wedding, and

    (2) he gave his son full power of attorney a few days prior to the suicide attempt.

    Here are my thoughts. There’s only $5mil left in the account and he knows the jig is just about up. He marries the fiancé quickly, knowing that due to “marital privilege” statutes, a wife can’t be forced to testify against her husband re: crimes that take place during the course of the marriage. He can now speak freely to his wife about the situation, with the marriage acting as a legal shield should he be apprehended.

    At the wife’s recommendation, he gives power of attorney to his son (whom I believe is a co-conspirator). This gives him and his wife time to escape and more importantly, it gives the son legal power to wire the remaining five million to the Wasendorfs at some undisclosed location.

    They have to act fast to pull it off but alas, they’re too late; They need at least a few weeks to fully execute the plan and hide somewhere, but the NFA now has full transparency, having strong-armed Wasendorf into providing electronic disclosure from U.S. Bank. He’s screwed. He executes a half-hearted “suicide attempt,” laying the groundwork for an insanity plea. The wife is protected by marital privilege and the son can claim ignorance.

    We’ll probably never know exactly how things went down but that won’t stop people like me from putting on a tinfoil hat and engaging in mindless speculation. What are your thoughts? Why did he get married so quickly? Why’d he give the son power of attorney? Do you believe (as I do) that the son is a co-conspirator?

  12. It makes for an interesting movie. I just wish to hell I wasn’t in it.

  13. Regardless of the amount involved in this situation CME is the one that has the most to loose when the Futures industry is having such a crisis of confidence, in my case I have had so many people come to me asking why was I selling the idea of the safety of funds in a “segregate account” in futures trading, others have closed their accounts to trade ETFs and others simply put their money under the mattress where they feel is the only safe place nowadays. I feel that NFA should be liable and between them and CFTC are the ones that should make investors whole because of their incompetence without going much into deep it is just unexcusable this situation, but after all they have little to loose if they dissapear as to CME is quite a big business. One thing that realy enoys me is how many people have come to me comparing those FOREX firms that you dont know who are you realy dealing with and most dissapear with clients funds in a few months to Futures but hey it really feels like the same, NFA has been wanting to get them all under regulation but in the mean time they let this happen. Im my opinion CME is the one who should be covering our backs from this thieves and secure their business from this situations after all they are the ones who have the most to loose in this game.

  14. As a former MF Global Client, this is exactly what I thought when the MF Global crisis unfolded November. After 9 months, nothing has changed and no insurance scheme has been setup. Given the size and magnitude of $1.6 billion of customer funds missing, no one at MF Global has been arrested and you have all these congressional hearings whereby nothing materializes after them. The lack of action should have undermined everyone’s confidence in the futures industry. But do you see the volume of futures trading in the CME dropping? No! Everything goes on as traders and farmers are not going to stop trading and boycott the CME just because they worry about the safety of segregated funds in their futures account. The only critical event you are going to see unfolding is people leaving lesser funds in their futures account and this is going to affect the business of brokerage companies such as RJO Brien. As I mentioned, CME will never want to risk themselves in a situation of moral hazard and being labelled as biased towards PFG clients. They will give you all that crap of “The futures markets are mostly professional markets with very different risk profiles from the securities markets. Given the size and scope of the majority of the accounts in this business, a government insurance scheme may be a cost prohibitive and/or ineffective solution”

  15. “Always do Right,……..this will gratify some people and astonish the rest” -Mark Twain

  16. I really don’t understand what mean “segregated account”????I thought my money was safe and could not be moved or used!!!!!
    How did the 200 millions disappeared???? In one transfer? 1 million every weel during 2 years?? Who has access to the segregated accounts? Do you think there was bank complicity or NFA complicity?
    Of course his son and others people are involved….
    Who is really taking care of PFG’s Clients money???
    Who is answering all the questions that we have?
    Is the FBI still investigating? Did they make some concrete comments?
    How can I start working with another firm with the risk that the same thing happens again?
    Do someone know the name and the contacts of a person really close to the case to be able to have precises answers??
    Thank you very much

  17. Here, here to all you comments and questions, Serge! It feels like none of these institutions give a f*** about us and our stolen money!

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