PFGBest Update: Ignorance, Negligence, and Accountability

Every now and then, you begin to read a news article, expecting to finish it without more than a shrug on the content. For many of the PFGBest stories that have come out in the past couple of months, that’s been the case.

And then there was today.

We wrote in the past about the NFA attempting to improve its processes by hiring Berkeley Research Group to look into its auditing practices, and where it went wrong with PFGBest. Today, Jacob Bunge with the Wall Street Journal reported on just what the Berkeley Research Group has been up to:

A key financial regulator has interviewed the executive team that ran Peregrine Financial Group Inc. in an effort to improve oversight of the industry, which was heavily criticized in the wake of the broker’s collapse last July.

Investigators working on behalf of the National Futures Association talked with most of Peregrine’s senior ranks, including jailed founder and Chief Executive Russell Wasendorf Sr., over the past month, according to people involved in the process.

Not all that inflammatory, right? They’re trying to learn from their mistakes, so they’re looking at how they were made. Sure, we’d rather they ask Wasendorf where the money is, but progress is progress, and at least they’re speaking with him directly… even if it does sound a bit like the plot of Catch Me If You Can. Except the article goes on to say:

In addition to Mr. Wasendorf Sr., who spoke with investigators at the Cedar Rapids Correctional Center in Iowa, investigators from Berkeley Research Group in December met with his son, Russell Wasendorf Jr., Peregrine’s former president and chief operating officer, according to people with direct knowledge of the matter.

Investigators also interviewed Brenda Cuypers, Peregrine’s former chief financial officer; general counsel Rebecca Wing; and Susan O’Meara, who had been the firm’s chief compliance officer, these people said.

Ok. So they spoke with the senior folks from PFGBest. The same folks who claimed to have no knowledge of the scheme or any wrong doing at the firm.  That story was hard to swallow before… but now there are only one of two possibilities – EITHER the questioning indicates that they didn’t know anything, which means they’re wasting time or resources, OR the questioning reveals valuable information, in which case,  we’d like to see some accountability.

Really, it’s very difficult to imagine a world in which the executives in charge of compliance and finance had no knowledge of $200mm in client funds disappearing into the night. Either they were grossly negligent, incredibly foolish, or a blend of the two. It’s one thing to pull the wool over the eyes of green auditors right out of college with no understanding of the industry; it’s quite another to “fool” seasoned professionals who you’ve hired to manage your books and regulatory status.

We’ll keep monitoring the situation, but for now, here’s hoping that all of this research yields results in one way or another, and that our version of Frank Abagnale gets what’s coming to him.

One comment

  1. Ignorance doesn’t work when it is your job to know.

    Ignorance works for mid-level staff but Corporate Officers? That’s why they are called officers.

    Other than Sr., the buck stops with the President. What is he doing if not protecting the assets, integrity and reputation of the company.

    I can’t imagine a CFO for a company the size of PFG overlooking a missing $200 million. Same for Compliance and General Council. They must have all signed documents attesting to the integrity of the accounts and/or procedures.

    This crew had to actively sustain the fraud through, at best willful ignorance (which is not a defense).. On what basis would they make the assurances required of people at their level? Where are their orange suits?

    Don’t you hate the word “Best”? It’s right up there with”Smart”.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, 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.

See the full terms of use and risk disclaimer here.