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Futures Trading Industry Nightmare, Part 2

In Financial Futures | Market Analysis
by Michael Wayne at 9:22 am on July 10, 2012 - [edit]

In late breaking news yesterday, the National Futures Association (NFA) took action against Chicago based Peregrine Financial Group and froze all accounts.  According to industry statements, customers could access their accounts to close out positions, but no further actions were allowed including trading or adding assets.  The NFA released an affidavit making claims that some $225 million in customer funds  were unaccounted for.

An email from PFG was forwarded to us that had this statement (we can not confirm whether this was truly sent via PFG, as they have not returned our messages for clarification, so we can only assume that they are not denying this) This has now been confirmed by an employee of PFG:

“Due to a recent emergency involving Russell R. Wasendorf, Sr., a suicide attempt, some accounting irregularities are being investigated regarding company accounts. PFGBEST is wholly owned by Mr. Wasendorf. Therefore, the NFA and other officials have put all funds on hold, and PFGBEST is in liquidation-only status with our clearing FCM. What this means is no customers are able to trade except to liquidate positions. Until further notice, PFGBEST is not authorized to release any funds. We will update you as any new procedures are stipulated and with any further information as it becomes available.”

The NFA then announced yesterday afternoon emergency enforcement actions as detailed below:

July 9, Chicago – National Futures Association (NFA) announced today that it has taken an emergency enforcement action againstPeregrine Financial Group, Inc. (PFG), an NFA Member futures commission merchant (FCM) and Peregrine Asset Management, Inc. (PAM), an NFA Member commodity trading advisor (CTA) and commodity pool operator (CPO) located in Chicago, Illinois.

NFA has taken the Member Responsibility Action (MRA) to protect customers because PFG has failed to demonstrate that it meets capital requirements and segregated funds requirements. NFA also has reason to believe that PFG does not have sufficient assets to meet its obligations to its customers.

Effective immediately, PFG and PAM are prohibited from soliciting or accepting any additional customer accounts or customer funds, except as margin for existing positions. Additionally, PFG and PAM are prohibited from accepting or placing trades for any customer accounts except for the liquidation of existing customer positions and are prohibited from distributing, disbursing or transferring any funds, including to existing customers, without the prior approval of NFA.

PFG and PAM may request a hearing on this matter before NFA’s Hearing Committee.

The complete text of the MRA is available on NFA’s website (www.nfa.futures.org).

A number of people in the industry have already started making comparisons to the MF Global debacle, but it has been pointed out by Attain Capital that the biggest difference here though is “there are no bondholders and big bank counterparties at the front of the line here.”  Meaning – maybe, just maybe, customers and vendors alike may see some of their money returned.  For full disclosure, PFG has been a great advertising partner of FuturesKnowledge over the years – so we can only hope for this outcome as well.  There are many good people at PFG, just like MFGlobal that have been blind-sided by all of this, and we can only hope they land on their feet elsewhere.  Regulators should be embarrassed that another company was able to fly under the radar for so long.  With some of the affidavit shown below dating back to 2010 – it starts to make people question how long our regulators knew this was going on.  We are not going to speculate – rather – we just hope this comes to a conclusion quickly, and customers go back to risking their money on the markets – rather than the FCM’s.

PFG NFA affadavit

We will update more details to this story as we get them – or, follow us on twitter at @trading_futures as we’re getting a lot of valuable feedback from IB’s and customers alike.

Updates as of 7/10/12 2:30 EST:

  • The Jefferies Group has begun the liquidation process in a “timely manner” and believes that all positions will be liquidated this week.  Here is their official statement they released:  “After PFG was unable to meet a margin call that Jefferies made in response to yesterday’s National Future Association’s Member Responsibility Action, Jefferies began an orderly liquidation of PFG’s positions.”
  • Some Mythbusters we’re seeing on Twitter-
  1. Jefferies did not own PFG (they were their clearing firm).
  2. PFG is Peregrine Financial, and not affiliated with Price Futures Group or publicly traded Prudential Financial Group.  They were 100% owned by Wasendorf Sr.
  3. Workers were told they could report to work – but with no guarantee of pay (where do I sign up?)
  4. There is no confirmation of Wasendorf’s condition – as the hospital has not released anything other than he is in critical condition (that was early this morning).

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