Now this is a business killer. NFA just settled with PFG by fining it $700,000 and requiring it not enter into guarantee agreements with IBs for two years subject to an opportunity to request modification of this restriction. Peregrine, Wasendorf, O’Meara and Schiff (PFG’s principals), so long as they are employed by PFG and to the extent it is within the scope of their duties were ordered to develop and implement updated or revised supervisory procedures with respect to the supervision of Peregrine’s GIBs. PFG was also ordered to designate an individual to act as its full-time AML officer.
Basically NFA is saying NO to forex brokers who either ignore or don’t notice excessive trading practices by their IBs and Money Managers. NFA wishes here to make sure that forex brokers take full responsibility for their forex clients whether they were self directed or arrived through IBs who are looking to maximize their commission.
Last week Minneapolis receiver R.J. Zayed, recovering money from the Crown Forex/Trevor Cook scheme, sued Peregrine Financial Group Inc., claiming Peregrine managers ignored red flags as Cook and his cohorts sent them $48 million. This potentially what made NFA deliver such harsh penalty.
When NFA began an audit of PFG in May 2011, the firm maintained fifteen branch offices located in eight states. It had seven listed principals and 143 registered APs, of which 125 were registered Forex APs. As of June 14, 2011, PFG had approximately $477 million in customer segregated funds on hand and approximately $30 million in customer funds in separate CFTC Regulation 30.7 accounts. PFG also had $35 million in liability to retail forex customers.
PFG conducts much of its retail brokerage business through a network of GlBs. As of May 2011, it had 113 GlBs in various locations throughout the country. PFG’s GIB network, together with some independent introducing brokers, introduced customers to PFG.
NFA’s Compliance Department became concemed with the adequacy of PFG’s efforts to supervise the activities of its GlBs based, in part, on Complaints this Committee issued against PFG GIBs Clash, OTG, CCTG and PFM (all Introducing Brokers) during 2010 and 2011. Three of the Complaints alleged that the GlBs routinely recommended trades and trading strategies that maximized commissions without regard for the best interests of their customers, and three of the Complaints alleged the use of deceptive sales solicitations.
ACY Securities Supports ASIC’s Product Intervention OrderGo to article >>
An additional concern was the fact that PFG used a firm named Investment Reference (“IR”) as its third party provider for conducting annual GIB audits. IR is owned and operated by an individual named Dennis Stahr (“Stahr”). Information available on MFA’s BASIC system reflects that Stahr has served as an AP and/or principal at four different firms that have been barred from the futures industry for sales practice fraud.
NFA reviewed PFG’s supervision of its GlBs and concluded that PFG’s commitment to supervising its large GIB network was less than optimal and did not meet the supervisory obligations established by MFA’s requirements
Overall, NFA concluded that the efforts of PFG, Wasendorf, Jr. and O’Meara to supervise PFG’s GIB network were deficient.
In addition to PFG’s GIB issues, NFA also determined that PFG, Wasendorf, Jr., 0’Meara and Schiff failed to diligently supervise activities related to PFG forex customers’ accounts in that they failed to ensure the implementation of effective AML procedures and failed to ensure that trading was not occurring in unfunded forex accounts.
[scribd id=81020605 key=key-p5wnjhpdk4h8j6sj8cq mode=list]
[scribd id=81020870 key=key-2b7xf7376yz74kbc4yt7 mode=list]