For Investors and Customers, PFG is MF Global all Over Again
RT’s Lauren Lyster looks into the PFGBest collapse – another case of regulator failure and customer abuse in the U.S. futures markets.
This is the kind of disruption to the markets that can have long lasting effects. The destruction of investor/speculator confidence and trust in the wake of Jon Corzine’s MF Global and now Russell Wessendorf’s PFGBest is as sad as it is chilling. It has to have an effect in the amount of future liquidity which will be available, as larger players who are easily mobile have to be looking for other alternatives in markets overseas.
The traders who have been locked out of their accounts and forced to liquidate have not only gotten a gut-check and lost their hedge protection, they may have also lost their capital or a large fraction of it – through pure fraud.
For those who deal in futures on an irregular basis, listen carefully to Mr. Chris Olson, CEO of Treasure Island Coins, Inc. He is just one of many hundreds or thousands of bullion dealers who need the “insurance” that hedging provides in a business that has razor thin profit margins.
“This is massive regulatory failure,” Olson says. “I cannot help but think that they (the regulators) have been bought off. They did a spot check in the wake of the MF Global scandal and U.S. futures brokers including PFG were found to be in compliance. They (the regulators) said; ‘There is nothing to see here folks, everything is fine. It was only MF Global.’ (But) they didn’t check the bank accounts of U.S. Bank that was supposed to be holding over $200 million in client segregated funds. There was less than $10 million and they have had well over a year to look into this,” the bullion dealer said.
Note in particular through whom the PFGBest trades were cleared.
Olson lays blame with the NFA (National Futures Association) for not doing the job they are paid to do and instead just taking the word of PFGBest that the Seg Funds were safe. Olson asks: “How could they have not known that this money was not in the bank account?”
Published reports say that Wessendorf set up a dummy P.O. Box in Ohio to intercept communication from regulators, fraudulently filled in the figures and mailed them back to regulators. The regulators had been pressing PFGBest to go to electronic verification just before Wessendorf’s ruse came crashing down.
Lyster then turns to John Roe of BTR Trading Group. Hitting the nail on the head, Roe comments: “No system of regulation is going to work if the regulators are that incompetent.” Lyster notes that the FBI and the CFTC have already moved to file charges against Wessendorf and asks Roe why he thinks there have been no charge filed in the MFGlobal scandal, which was much larger. Roe replies: “That begs the question, what is different about MFGlobal and of course the answer is that the CEO Jon Corzine is very politically connected.”
The sums involved are not in the same league with MFGlobal or Madoff, but sometimes it is a small straw that breaks the proverbial camel’s back when it comes to confidence. We futures traders need to take a good look at our broker dealer and their clearing firm (if not the same) and at the very least consider having at least two accounts with different BDs.
Source: RT and Capital Account via YouTube