US broker PFGBest freezes funds after founder's suicide attempt

(Reuters) -Mon Jul 9, 2012 7:01pm EDT - Independent U.S. futures broker PFGBest said it had effectively frozen customer accounts on Monday after a suicide attempt by the company's founder set off an investigation into possible "accounting irregularities."

In a dramatic turn that may trigger a new round of anxiety over the stability of the brokerage industry less than a year after the collapse of much larger MF Global, the Cedar Falls, Iowa-based firm told customers that they would be limited to liquidating open positions until further notice.

The disclosure came hours after owner Russell R. Wasendorf Sr, a 40-year veteran of commodity markets, was found in his car near the company's new headquarters, having apparently attempted to commit suicide. He is in critical condition at the University of Iowa Hospitals, according to local news reports.

PFGBest, which brokered trades in U.S. commodity and foreign exchange futures and options, told clients that the National Futures Association (NFA) and other officials had put its funds on hold, and that it was in "liquidation-only" status with its futures commission merchant (FCM), which clears its trades.

"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," the note said.

PFGBest officials were not immediately available to comment. Messages and emails to NFA were not returned.

With about $400 million in segregated customer accounts, less than a tenth the amount MF Global had when it filed for bankruptcy, the fallout will likely be less severe. But news of more financial troubles in the brokerage sector still threatens to further erode confidence.

There was no indication that segregated funds had been breached, as is suspected with MF Global.

"WE'RE DOOMED"

One broker at the firm said that Wasendorf's son, Russ Wasendorf Jr, briefed employees about the events earlier in the day, saying that a suicide note had been found alluding to some kind of financial troubles with the company. The younger Wasendorf "sounded like he was in another world."

"Everybody here is obviously in shock," said the broker, adding that some employees had begun packing up shortly after the announcements.

"Pretty much everybody around here said we're doomed."

One former employee of the firm said he had grown concerned that Wasendorf didn't do more to distance the company from a massive $194 million forex-trading Ponzi scheme run by Trevor Cook in Minnesota, who admitted defrauding more than 700 investors. Cook is serving 25 years in prison.

In February PFGBest, which had acted as Cook's broker, was fined $700,000 by the NFA for failing to notice the scheme. The company was subsequently sued for $48 million by the receiver rounding up the assets from Cook's scheme.

FROM BASEMENT TO COMPOUND

PFGBest is far smaller than the big investment banks that dominate the brokerage business, but was among a dozen or so well-known independent firms that tended to cater to local traders, farmers or smaller market players.

Russell R. Wasendorf Sr started as a commodities trader in the basement of his Cedar Falls home in 1972, offering seminars and educational programs to other traders. In 1990 he launched Peregrine Financial Group, which would become PFGBest, and was an early promoter of electronic trading systems.

He expanded the business in the late 1980s after making a windfall profit for himself and customers by advising them to short the financial futures market 10 days before the "Black Monday" stock market crash of 1987, the firm's website says.

The firm grew significantly over the past decade, opening offices in Canada and Shanghai, and buying smaller rival Alaron in 2009. It also moved its headquarters from Chicago back to Wasendorf's hometown of Cedar Falls.

"It's obviously a lot cheaper to hire someone in Iowa than it is in Chicago," said the former employee.


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I was alerted earlier in the day to this situation about 4:00 pm. I did call a principle of the firm who did confirm the above information.

http://www.futuresmag.com/2012/07/09...-segregated-fu

I hope that the customers receive their funds.

Anyone here use PFG with any insight?

Unfortunately, this type of thing is going to be a trend in the coming months and years I think. I would recommend that if you have what you feel is a significant amount of money with one broker. I would look to diversify by cashing out a portion of it and fund a few different accounts with different brokers in case one goes bust on you.

I was a former Top FX broker for PFG in the AlaronFX days... The stories.. wow.. They are in liq only mode.. No funds can be withdrawn by customers at this time.

yep i had over 300k with them but thank god i move to citifxpro, nothing safe in forex

no, apprently client's fund is intact.

RFED(retail foreign exchange dealer) is much safer than any other in the world. If in other cases, the founder may already move clients' asset to cover his loss, not to suicide.

//feel sorry for PFGbest, but the boss made a huge mistake and his business is doomed.

eh, I made a mistake.

According to forex magnates, http://forexmagnates.com/nfa-publish...ay-be-missing/

“In support of these actions, NFA attaches the affidavit of Lauren Brinati, a Director in NFA’s Compliance Oepartment, and based thereon alleges as follows:

PFG is an FCM/FOM Member of NFA located in Chicago, Illinois.
PFG and PAM share several directors in common and PFG and its chief executive officer each own more than 10% of PAM.
Pursuant to NFA Financial Requirements Section 1, PFG was required to maintain Adjusted Net Capital of approximately $31 million as of May 31, 2012.
Pursuant to NFA Financial Requirements Section 4, PFG was required to maintain segregated funds of approximately $400 million as of July 5, 2012.
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 U.S. Bank and learned that rather than the $225 million that PFG had reported as being on deposit at U.S. Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank.
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 these months.
As of the date of this MRA, PFG has been unable to demonstrate to NFA that it has sufficient capital to meet its minimum adjusted net capital requirement or segregated funds to meet its obligations to customers.

I'm interested in the Forex market but this is the type of #$(* that scares me about it. How can this happen? Where does the money go?

I'm more curious, whether is this could be predicted to get out money before freezing?
If they didn't meet capital requirement could that be seen from their financial data, or adjusted net capital/required capital etc.?

Well I am out 4 grand and likely will be unable to recoupe it. A setback for sure and I feel like crap. Thankfully I have my accounts broken up with multiple brokers. This industry is sorely in need of regulation and oversight. Having money in a FX broker I guess is money you can afford to loose.

this shit is becoming a trend in the broker world, no matter how big any of these brokers are your money is never safe.

The funny thing is that it seems like so many traders are looking to get away from regulation, as if they don't get that it is there to protect them. They'd rather have a shot at blowing themselves up to 400:1 leverage overnight than care about the broker stealing their money. I'm definitely looking for US based brokers with a strong history of being regulated. I'm also prioritizing brokers that were in other markets before Forex where they were regulated by other entities.

Did you forget about Refco?

http://en.wikipedia.org/wiki/Refco

That is the problem...regulation is not really protecting the traders in this case. They found out way too late and the money is gone.

NFA being a organization of the industry to police itself, they need to get serious and insure the client accounts against shenanigans like this. Only then will regulation be seen as a good thing, instead of red tape tying the hands of traders (who might otherwise hedge, etc. pre-dodd frank days).

Otherwise what good did it do here? they found out after virtually all the money was gone.

yeah i forgot about those boys, refco started the trend.

same with MF, when the regulator do they monthly check on these broker why don't they check the broker bank account to make sure there not lying about how much money they have to cover there customers funds.

Exactly!!!

The best thing to do right now is to use tier2 prime brokers( vcap, marex, fcstone or hotspotfx) with the option of trading with BANK GUARANTY. Im never gonna ever deposit a dime with any broker again.

PT hope u got out in time

CFTC Files Complaint Against Peregrine Financial Group, Inc. and Russell R. Wasendorf, Sr. Alleging Fraud, Misappropriation of Customer Funds, Violation of Customer Fund Segregation Laws, and Making False Statements

Commission Seeks an Order Freezing Assets and Restitution of Customer Funds.

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) announced today that it filed a complaint in the United States District Court for the Northern District of Illinois against Peregrine Financial Group Inc. (PFG), a registered futures commission merchant, and its owner, Russell R. Wasendorf, Sr. (Wasendorf). The Complaint alleges that PFG and Wasendorf committed fraud by misappropriating customer funds, violated customer fund segregation laws, and made false statements in financial statements filed with the Commission.

The National Futures Association (NFA) is PFG’s Designated Self-Regulatory Organization and is responsible for monitoring and auditing PFG for compliance with the minimum financial and related reporting requirements. According to the Complaint, in July 2012 during an NFA audit, PFG falsely represented that it held in excess of $220 million of customer funds when in fact it held approximately $5.1 million.

The Commission’s action alleges that from at least February 2010 through the present, PFG and Wasendorf failed to maintain adequate customer funds in segregated accounts as required by the Commodity Exchange Act and CFTC Regulations. The Complaint further alleges that defendants made false statements in filings required by the Commission regarding funds held in segregation for customers trading on U.S. Exchanges.

According to the Complaint, Wasendorf attempted to commit suicide yesterday, July 9, 2012. In the aftermath of that incident, the staff of the NFA received information that Wasendorf may have falsified certain bank records.

In the litigation, the CFTC seeks a restraining order to freeze assets, appoint a receiver and preserve records. Further, the litigation seeks restitution, disgorgement, and civil monetary penalties among other appropriate relief.

The following CFTC Division of Enforcement staff members are responsible for this case: William Janulis, Jon Kramer, Thaddeus Glotfelty, Melissa Glasbrenner, Rosemary Hollinger, Scott Williamson, Richard Wagner.

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