The Wall Street Journal is out with an article today entitled, “Futures Overseer Plots Revamp.” On face, this headline might be positive, and in some ways, it was. The article stated:
At a meeting last Thursday, directors and NFA executives discussed the agency’s oversight of the industry and ways to confirm that bank accounts holding customer money for other futures firms are intact, according to Christopher Hehmeyer, chairman of the NFA.
The NFA also is looking at ways for officials from commodities firms and exchanges to share more expertise with NFA auditors. “We want to try and tap the experience of the members to help the auditors root this stuff out,” Mr. Hehmeyer said.
Looks like a step in the right direction, particularly calling on industry members to advise the regulators on what is actually going on out there. However, Attain has offered up its expertise with the display of CTA and trading system performance more times than we can count, with all such offers of our expertise being largely ignored, so this looks to be more talk than action. But the real meat of the WSJ piece comes a few paragraphs down. Emphasis ours:
In a July 13 meeting in Washington, staff members of the committee questioned NFA officials about their failure to catch the alleged fraud, according to people who attended the meeting. Daniel Roth, the agency’s CEO, said it isn’t NFA auditors’ responsibility to look for fraudulent activities, the people said.
Mr. Roth said Mr. Wasendorf’s scheme was extremely complicated, and thus difficult for auditors to detect.
YOU HAVE GOT TO BE KIDDING. The NFA’s own website has an entire page labeled “How NFA fights fraud and abuse.” If the NFA isn’t supposed to be looking for fraudulent activity, then what in the @#$% is their purpose? We’d like every penny we have ever paid to the organization back- today. And in what world was Wasendorf’s scheme complicated? He was photoshopping statements. A high school kid with 10 minutes on their hands could probably duplicate the “extremely complicated” scheme.
Hold on- it gets better:
When asked by Senate staffers about whether the NFA placed a phone call to U.S. Bank to verify information about the account, an NFA official said generally accepted accounting rules typically discourage placing verbal checks in audits.
Asked about the meeting, an NFA spokeswoman said: “It’s core to our mission to prevent and detect fraud as quickly as possible.”
It seems as though, on top of alleged confusion about futures industry basics, there is some confusion over just what the purpose of the NFA is. The NFA spokeswoman and the NFA website say preventing/fighting fraud is part of their mission, but Dan Roth, the head of the NFA earning receiving $640,000 a year, thinks it isn’t.
And no verbal checks on the paperwork during the audit? Maybe that’s part of the problem. Then again, we were contacted by a former NFA auditor who attested to the fact that, in light of red flags like the use of a P.O. box for fund verification, and those reports we’ve heard of magical faxes and letters expressing segregated fund concerns, a phone call would have absolutely been warranted. In fact, the auditor argued that they had made phone calls over far less than that in years past, describing the handling of PFGBest as “appalling.”
As more and more comes out about just what is going on at the NFA, you’ll understand why we are so adamantly calling for a thorough investigation of the regulators. If you agree, be sure to sign our petition.
Until then, though, here is what can be done by futures market investors moving forward to remove the need for the NFA.
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