NFA Ignores Independent Audit Criticism and Pats Themselves On The Back During Board Meeting
The NFA yesterday held a board meeting to discuss results of an independent audit by Berkeley Research Group (BRG) in

The NFA yesterday held a board meeting to discuss results of an independent audit by Berkeley Research Group (BRG) in response to the PFG Best fraud. The BRG provided a list of recommendations for the NFA to implement to prevent further fraud which includes daily supervision of broker and client funds as well as an increase in certified fraud examiners on staff. The NFA announced that they would implement the BRG’s suggestions.
In their prepared remarks the NFA spun the positives of the BRG reports and stated:
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BRG found that, overall, “NFA audits were conducted in a competent fashion and the auditors dutifully implemented the appropriate modules that were required in the annual audits” following the standards set by the Joint Audit Committee, a representative committee of the Audit and Financial Surveillance departments of U.S. futures exchanges and regulatory organizations.
BRG also found that, unlike in the Madoff Ponzi scheme, there were no complaints from customers or attempts at whistleblowing regarding Wasendorf’s fraud. BRG concluded that Wasendorf “was able to conceal his fraud meticulously by providing numerous convincingly forged documents to NFA and others.”
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While the BRG stated that the NFA had conducted audits correctly and enforced its rules that were obviously lacking, they also added many critical points towards the regulators supervision of PFG. These points were omitted from the NFA’s Press Statement and were summarized by ” (The) BRG conducted an independent, thorough, and accurate review of NFA’s audits of Peregrine Financial, and identified areas in which NFA could have been more inquisitive,” said Todd Petzel, chairman of a Special Committee.
Omitted details included:
- “we did find that some NFA auditors did not always exhibit sufficient professional skepticism in assessing and evaluating fraud risks.”
- “We also found that some of the members of the NFA audit teams were relatively inexperienced and unfamiliar with the futures industry”
- “We found that, while training at NFA was readily available and effective, particularly for the inexperienced auditors, there was not always consistency in training sessions after important events in the industry, such as the Bernard Madoff Ponzi scheme, or the MF Global collapse, where there were opportunities for significant lessons to be learned for NFA auditors.”
- “We also found that the NFA audits of PFG did not focus adequately on internal controls of PFG. For instance, some NFA auditors were not aware that Wasendorf was the only individual within PFG who had access to the original U.S. Bank statements (which provided him the ability to falsify the statements provided to PFG’s staff and NFA),”
- “We further found that the NFA auditors had little interaction with PFG’s outside auditor, did not review the outside auditor’s workpapers, and some NFA auditors were not aware until the 2012 annual audit that PFG’s outside auditor was, in the later years, a one-person auditing firm in suburban Chicago.”
- “We also found that NFA auditors did not fully examine the fact that PFG was losing significant money in many years, Wasendorf’s frequent and significant capital contributions, or the source of his capital contributions. “
- “We found that NFA auditors did not express significant concerns about PFG’s reverse repurchase Agreements”
The entire review is available here
We reached out to the NFA about these issues and other forex related questions and hope to have an official dialogue next week. (Update: Response from the NFA)

In other events at the NFA they recently released their annual report with financial figures for the year ended June 2012. Despite the poor year, the agency increased its revenues by 25% to $56.3 million from $45.6 million with the biggest changes coming from a 34% increase in Assessment charges which rose to $38.4 million.
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Omitted details , great job Ron did.
So the NFA is a “For Profit” Association?
How much does it cost to run the firm? Where do the additional proceeds go?
Someone should audit their books.
I have failed to understand for years why the NFA refuses to adopt a seg fund policy for retail forex accounts held with RFEDs. Something similar to the FSCS protection offered to clients of FSA regulated forex brokers would go a long way to protect customers. Say for example FXCM folds next year when it is discovered they have been cooking the books – all retail fx account holders will be screwed, viewed as general creditors. I think the NFA has proved its complete incompetence when it comes to actually regulating FCMs/RFEDs, as PFG/MFG has shown – despite this joke… Read more »
Thanks for posting this, Ron/Michael. So not only did nobody get fired at the NFA in the wake of PFG……but the NFA is growing in size. Seemingly typical of a quasi-government entity. If you fail, the best thing to do is to grow bigger since revenue generation is never a product of the marketplace, but rather your ability to demand more of those entities over which you exert legal authority. In the real world, a failure of this magnitude would be cause for a thorough re-examination of the mission of the entity, the means of funding the entity, and what… Read more »
Seeing as the NFA is in all technicality and “Independent” regulating agency.. When we use the words “Independent” that means a business principle. So in Retrospect.. If we we’re the community to form our OWN Independent.. Regulating agency. Can call ourselves the NSNFA.. (NonSuckingNationalFutureAssociation) In retrospect.. We could technically form our own “Independent” regulatory agency, where — Forex brokers can sign up for a “Membership” and be regulated by a 3rd party that has no affiliation. I think the NFA.. Exaggerated to much power thanks to Dodd frank regulation and the support of the government in terms of being given… Read more »
It is a matter of time and NFA will be either implode or be finally and once for all be taken down. NFA is the most evident failure of this industry and one of its largest problems. They have the power to fine or shut down a firm for its “promotional material”, and the public letter of its president is a masterpiece of misleading and false information… Mr. Roth also forgot to mention if they finally will be paying or not the 2012 salary bonus which they have halted waiting for the end of the audit.. A little amnesia? I… Read more »
the thing is that they cannibalize their market – soon nobody will be left to pay their fees..
@Ohmygosh – re: bonuses – they aren’t getting them – http://online.wsj.com/article/SB10001424127887323701904578277842549970524.html – WSJ posted a little after us with some more details