(PFG) BEST foot forward?

Suicide is painless, the pain is always felt by those left behind..or stiffed… At the foot of the PFGBest site

Suicide is painless, the pain is always felt by those left behind..or stiffed…

At the foot of the PFGBest site is a section titled “disaster recovery”. Many desperate clients, who will have visited the futures broker’s site over the past two days after news broke regarding their broker’s collapse, will have immediately clicked on that section. If they were expecting to see news of any payout, or compensation procedure in order to limit their losses they’ll be left disappointed, the section at the foot of the website contains the following message;

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“In the wake of the September 11, 2001 tragedy, all NFA and CFTC members are required to have Disaster Recovery Procedures. In the event of an emergency, please call 1.866.882.5767 for updated information.

Regards,

PFGBEST”

To say the news of a collapse came as a shock would be an understatement, a quick glance at the various wires and the mainstream news outlets over the past few weeks reveals glowing references to the firm;

“As of June 4, PFGBest, which is largely engaged in retail commodities and foreign exchange trading, reported about $400 million worth of client funds on deposit to back up outstanding trades; this made it the 50th largest futures-commission merchant registered with the Commodities Futures Trading Commission. ”

For clients still awaiting news regarding their compensation after the MF Global scandal the ignorance and lack of response or communication from ‘the powers that be’ will come as no surprise. But what may hurt is the continual incompetence of the body they’ve placed far too much faith in to oversee the industry and protect the best interests of the investor ahead of investment firm, namely the NFA…

MF Global was a brokerage headed by former New Jersey Gov. Jon Corzine, it collapsed last October after filing for bankruptcy protection, apparently crippled by disastrous bets on European debt, less than two years after Corzine became CEO. A bankruptcy trustee is still trying to recover $1.6 billion in money missing from MF Global’s client accounts. This case prompted calls for increased regulation of the futures industry.

If it looks like a Ponzi scheme, walks like a Ponzi scheme and talks like a Ponzi scheme..

In excess of $200 million appears to simply vapourised from the customer accounts of the Iowa-based futures broker PFGBest, regulators announced Monday, this news broke just hours after the company’s founder reportedly attempted suicide.

The National Futures Association immediately ordered all accounts to be frozen at Peregrine Financial Group (PFG), after receiving information PFG only has about $5 million of $225 million of the customer funds it claimed to have in a US-based deposit account, it would appear that the company may have also falsified bank records.

The NFA, the industry group that serves in a self-regulatory role, stated that PFG could not demonstrate its capital requirements and rules requiring it to segregate customer funds.

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In a notice to customers, PFG said it was in liquidation-only status as; “some accounting irregularities are being investigated regarding company accounts. What this means is no customers are able to trade except to liquidate positions. Until further notice, PFG is not authorised to release any funds.”

The announcements from PFGBest and the NFA came hours after the company’s founder Russell Wasendorf Sr. was found in his car outside the company headquarters in Cedar Rapids after apparently attempting suicide. Whilst a tragedy for those close to him the pain felt by those whose life savings are caught up in the debacle unlikely to be recompensed will be amplified.

JPMorgan, custodian of funds?

There’s another factor to this lack of regulation that is also worth investigating which few outlets in the mainstream media will report, namely the involvement of the behemoth Wall St. banking institution JPMorgan as custodians of the PFGBest funds, who were coincidentally the same custodian of the MFGlobal funds. What may finally come under closer scrutiny is just who’s interests the NFA actually ‘protect and serve’, particularly given how closely this event follows the similar pattern to the MF Global collapse; a clean bill of financial health followed by an outlier venomous curve ball delivered with the ferocity of Felix Hernandez.

And what of the NFA, what communication has been forthcoming for clients in their hours of need? Surely the wheels are in motion with regards to satisfaction and compensation? The tumbleweed soon to be blowing through the corridors of the IOWA based broker will be matched only by that drifting through the NFA offices if their lack of current form is anything to go by..

On or about June 29, 2012 PFG reported to NFA that it had approximately $400 million in segregated funds, of which more than $225 million were purportedly on deposit at U.S. Bank.

On or about July 9, 2012, NFA received information indicating that PFG’s Chairman may have falsified bank records

On July 9, 2012, NFA made inquiry with US Bank and learned that rather than the $225 million that PFG had reported as being on deposit at US Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank.

There is a highlighted part of the NFA statement that’s worth closer inspection;

“Further, NFA learned that, in contrast to purported bank confirmations submitted to NFA that sought to confirm U.S. Bank account balances as of February 2010 and March 2011, that reported balances of approximately $207 million and $218 million, respectively, PFG’s actual balances at U.S. Bank at those times was less than $10 million for each one of the months.”

If clients weren’t aware that the NFA is not a USA government body then they’re about to have a rude awakening after the snooze alarm was set off after the MF Global scandal. This admission of lack of governmental insight, due diligence and oversight is quite frankly terrifying for small investors and will no doubt have left many investors puzzled over who they can actually trust to protect their interests.

“National Futures Association (NFA) is the industrywide, self-regulatory organisation for the U.S. futures industry…. NFA is an independent regulatory organisation with no ties to any specific marketplace. We operate at no cost to the taxpayer. We are financed exclusively from membership dues and from assessment fees paid by the users of the futures markets.”

http://www.nfa.futures.org/nfa-about-nfa/index.HTML.

Paul Holmes

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