That Time PFGBest Commissioned a White Paper on Customer Protections


Back when the U.S. futures industry was reeling from the missing client funds at MF Global, an Iowa-based broker called PFGBest commissioned a white paper on protecting customers’ segregated accounts. “Commodity Customer Protections and Regulations History and Potential Solutions for the Future,” it was called.

And yes, that was the same PFGBest that froze customer accounts yesterday after owner Russell R. Wasendorf Sr. attempted suicide, and amid allegations by National Futures Association that the firm was short some $220 million in client funds. An excerpt (you can read the entire paper at Alphaville):Violation of the sanctity of customer segregated funds—the regulatory requirement that customer monies must be held separately from brokerage firm assets and 100% available to customer—by MF Global, one of the largest firms in the business, has shaken industry professionals and customers to the core. Thus, the call for improving protection of customer funds in the futures industry.

That wasn’t the only time PFGBest moved to assume the role of thought-leader in the futures business. According to The Wall Street Journal, Mr. Wasendorf has been a vocal force in the industry. It would be funny if it weren’t sick. Or “sad,” as Susan Abbott Gidel, the consultant PFGBest hired to author the white paper told us: “If you look back at the history of these types of situations, it’s not that there weren’t rules in place, it’s that rules were gone around.”

Another thing: Per the case documents posted on the NFA’s website, PFGBest had mislead regulators about the funds on deposit as early as February 2010, when the broker said it had $207 million in a U.S. Bank account—it really had less than $10 million, according to the NFA. And according to a complaint filed against the broker by the Commodity Futures Trading Commission, the firm failed to maintain adequate funds in client segregated accounts since February 2010.

Well, ok, but from what we can tell from the NFA’s regulatory requirements, Futures Commissions Merchants, or FCMs, that carry customer accounts must be audited annually. So did the auditors just whiff on the fact that about $200 million in client funds have been missing for tw0-and-a-half years? And even after PFG was fined $700,000 in February for failing to notice that a Minnesota man named Trevor Cook used the firm as his broker in a $170 million Ponzi scheme?

The NFA hasn’t returned calls for comment. A spokesman for the CFTC declined to comment beyond publicly available documents. That Time PFGBest Commissioned a White Paper on Customer Protections