Here’s something you don’t hear around our offices too frequently (or possibly ever before)… Good Job NFA !
While the NFA’s handling of the PFG fiasco belongs in textbooks on how not to do public relations in times of crisis, it looks like someone over there finally woke up and is trying to turn the tide of public opinion. MarketWatch reports:
The National Futures Association has repaid a $700,000 fine levied on Peregrine Financial Group Inc. in February, boosting the funds available to the trustee liquidating the collapsed U.S. brokerage. […]
The fine was part of a settlement settling charges related to an alleged Ponzi scheme run by a customer of the brokerage. The agency charged that Peregrine didn’t properly monitor and report suspicious activity, and the firm agreed to the fine without admitting or denying the allegations.
The voluntary return of the penalty adds to funds available to the trustee to distribute to Peregrine’s futures and options-trading customers, though a steep shortfall remains.
It’s about time, considering that we started calling for a return of these funds two weeks after the bankruptcy was declared. And that’s two for two, first following our advice on having always-on access to FCMs bank accounts, and now returning the regulatory fine money to the PFG estate for benefit of customers. We have just two concerns.
One, we calculated the NFA’s fines for PFG over the years as $870k. Since Wasendorf admitted that he committed fraud for 20 years – the NFA should pay it all back, and not just the most recent fine. What’s $170k more when you have assets in the tens of millions? And second, please tell me that you specified that this money was to go to the benefit of customer segregated funds – that you wired it to the 4d accounts of the PFG estate, and not just into the open arms of the general estate. Please tell us some of that $700k won’t be fought over and go to general creditors. Please tell us you were thinking of the customers here and actually thought through how they would get the money directly, and not just the PR headline.
As long as someone over at NFA appears to be listening (after all, we do submit every one of our blog posts to NFA for regulatory review for compliance per the NFA’s promotional material guidelines) here are a few more things you can do to shore up the industry and improve your standing:
- Send over dozens of people from your audit team to assist the PFG trustee in verifying the books of PFG and which investor accounts are real, and which were falsified. Call every customer if you have to, get every bank statement. Use your powers to get in there and do the work (for free) which the estate is being charged hundreds of dollars an hour to do (and doing it quite slowly). You owe it to the customers.
- Champion a SIPC-like insurance fund for the futures industry. Lobby the CFTC to expand your powers and allow you to levy fees to fund the insurance. Make rules where it is optional and set out regulations for how FCMs and clearing exchanges track each type of customer. Get behind the idea and do all that you can to see it through to fruition.
- Create a system whereby any and all interpretations made by NFA staff in regards to promotional material, accounting practices, and other regulatory compliance are posted to a website for all NFA members to see. Your current system only gives these interpretations to the firm being reviewed, creating an uneven playing field and the possibility of NFA member firms doing something “wrong” simply because they don’t know about the most recent interpretation of the rules by the staff.
- Realign the NFA board of directors to have greater customer representation by having more individual broker and introducing broker board seats. The brokers and introducing brokerage firms are the firms on the front line talking to the end customers day in and day out, not the Goldman Sachs of the world. The way the MF Global and PFG scandals have played out, there is a feeling that the customers’ interests are secondary to the big institutions that use futures markets – one look at the composition of the board of directors tells you exactly how that feeling came about. The end customers and brokers who represent them are woefully underrepresented on the current board structure.
The NFA appears to be turning the corner at last. Now keep the momentum going!
September 11, 2012
There is some excellent tips here for NFA, especially about helping determine which back-office entries are fraudulent. I actually put some concrete, actionable items up on Twitter today (@johnpneedham). If you’re in touch w/ anyone at NFA, have them take a look.
They have to go after the back-office system’s Transaction History File (referred to as “the TH1 file” by back-office technical experts). I gave them the file name and the query selection criteria. Even offered a couple of days of free consulting advice to get them moving in the right direction.
September 11, 2012
Thank you Attain for staying on top of this and for your good insight from the beginning.
September 12, 2012
You guys are brillant what a great job at stating the obvious! Gee 800k is going to really help the customers who lost 200 million with the FCM you trusted Attain! Please what a bunch of self serving crap. Attain had most of their biz at PFG even though they were in fact a NON Clearing FCM which meant less capital requirements and the NFA not the CME was their regulator. Further, were are at least 30 better capitalized firms to clear with and sometimes going with the cheapest clearing rates has it’s darkside. Interesting how the next NFA Audit goes at Attain. LOL.
September 12, 2012
@jack
what do you mean in your statement, per quote at….
jack says:
September 12, 2012 at 10:38 am
could you pls clarify a bit. thx much. nakachalet@gmail.com
September 13, 2012
what point?
September 13, 2012
@jack
here is your quote per se:
Attain had most of their biz at PFG even though they were in fact a NON Clearing FCM which meant less capital requirements and the NFA not the CME was their regulator. Further, were are at least 30 better capitalized firms to clear with and sometimes going with the cheapest clearing rates has it’s darkside.
many would appreciate your finer points and observations all and all. thx jack.
September 13, 2012
Whether a solution is obvious or not, and whether it returns .01% to customers or 25%, we’re committed to putting public pressure on those who can effect some changes and return funds to customers. We did trust PFG, but more than that we trusted the system and the regulators in charge of ensuring that customer funds were properly segregated. We’re willing to risk some retribution from the NFA in our next audit to make sure real changes in the industry occur so this never happens again, and we’re willing to look silly for pointing out the obvious if it results in even a single additional dollar being returned to customers.
November 9, 2012
Attain , have you heard anything through the grave vine that additional assets have been located. I read somewhere that the FBI was questioning Russels personal pilot about his destinations etc.
I theorize that he started spending t he investors money and next decided that in light of his Brilliance, he
could trade and make up for his thefts. I bet he is actually closer to any average trader who got lucky in the financial collapse years ago.
And deep greed almost always leads to losses, and that in turn produced the next round of losses and that is where the bulk of the funds are located…..in other traders accounts.
But I still have some hope that large assets will be located or a white knight will come forward.
November 9, 2012
We haven’t heard anything about that, but we definitely share in your hope that additional assets can be discovered.