PFGBest Update: NFA Making the Right Changes?

The news yesterday for PFGBest was good – the Trustee is finally going to move on making a distribution. While we wait to find out exactly how much that distribution will be, and at what point clients will start receiving the funds, the NFA revealed additional moves. As many of you know, we’ve been putting pressure on the NFA and its board of directors to conduct an extensive evaluation of its policies, practices and people, going so far as to call on Congress to launch an investigation of their own. After lengthy conversations with several board members, we seem to be making progress, with the NFA retaining expert consultants on the matter to conduct an independent review. The Wall Street Journal reveals:

Hiring Berkeley Research Group to examine the NFA’s auditing practices followed the July appointment of law firm Jenner & Block as counsel to the NFA as part of its internal review. Berkeley’s financial institutions practice includes market experts that helped examine the Securities and Exchange Commission’s failure to uncover the Bernard Madoff Ponzi scheme. A spokeswoman for Berkeley declined comment.

The review process is being overseen by a newly created subcommittee of the NFA’s board, made up of its public representatives and headed by Todd Petzel, chief investment officer of Offit Capital Advisors LLC.

Why does this matter? For starters, they’re not relying on a law firm to examine their practices; they’re turning to an organization with a history of working with regulatory bodies to improve their practices. Further, they board of directors is taking the situation seriously, designating a subcommittee to handle the situation instead of letting those who are potentially culpable guide the process. And it looks like this isn’t just an empty gesture, either. The findings of the committee, as it turns out, will have some significant consequences:

The fallout has extended to the agency’s most senior ranks. President and CEO Dan Roth last month raised with NFA’s board the issue of whether he should continue to serve, though didn’t formally offer to resign, according to people with knowledge of the discussion.

NFA directors determined at the time that it was premature to evaluate his future ahead of the external review. Decisions on bonuses for the 2012 fiscal year, which ended June 30, will also be deferred until that time, the people said. […]

While NFA board members have discussed general succession planning for senior management roles, directors haven’t pushed for any immediate changes, according to people close to the talks. With no evidence that anyone at the regulator was involved in the alleged fraud at Peregrine, the NFA’s board sees value in retaining its leadership—in particular Mr. Roth, who has worked for the agency since its inception in 1982-while navigating fallout from the broker’s collapse.

The NFA board decided to postpone decisions on bonus payments for senior management at a regularly scheduled meeting Aug. 16, according to a person close to the situation.

Now, we’re no fans of Mr. Roth and the direction of the NFA under his tenure, but we think this is the right move. We’ll give him props for putting his resignation on the table for consideration, and we’ll applaud the board of directors for deferring bonus payments until the final evaluation is completed; after all, those are supposed to be based on performance, right? But at least it appears as though there will be consequences if the evaluation yields poor results, as we believe it likely will – particularly if the review includes interviews with NFA members on the execution of NFA audit procedures.

Headed into the holiday weekend, we’re cautiously optimistic, but it looks like we may be FINALLY turning a corner in the PFGBest scandal.

3 comments

  1. finally some of those people will be getting their money back…This sort of thing makes me sick…To see honest people getting screwed over by fat cats…

  2. I’m glad you can be so optimistic. Unfortunately, this whole thing fails the smell test from the get-go. Look who they’re bringing in to do the honors — none other than David Kotz, fresh from the do-nothing SEC.

    Here’s a preview of things to come: an “independent audit” that will find that, sure, the NFA needs some minor tweaks, but overall it’s doing a swell job! Then the NFA can act like it’s really addressed the situation. This will be a total whitewash, which will not prevent the next fraud from happening.

    The NFA is negligent, incompetent and deserves to be sued by anyone who’s lost customer funds. This has class-action gold-mine written all over it by any lawyer smart enough to act. By their own admission they have failed, as evidenced by the need for an independent audit in the first place. They’ve taken a cut of every trade ever made in the markets — now it’s time to give some cash back to the customers who’ve been defrauded, thanks to their incompetence.

    Sue the NFA. Sue them hard. Sue them now.

  3. I agree with Jake, totally! The NFA should be sued for negligence, and moneys they have collected from trades should be used to return PFG clients funds!

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The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

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