Yesterday, while the John Lothian News team was breaking the story of Russ Wasendorf’s attempted suicide and financial irregularities at PFGBest, one of our young interns thought the PFG we were talking about stood for the Price Futures Group. 

No, it was not that PFG, I told him.  Nor was it that PAM.  The Peregrine Financial Group has an affiliate company, Peregrine Asset Management.  The Price Futures Group has a much longer established and more well known affiliate, Price Asset Management.

Also, Peregrine Financial Group is a non-clearing futures commission merchant that handles customer funds and The Price Futures Group, Inc. is an introducing broker that does not.

Now, if my mistaken intern were right, that would have made my commentary yesterday about not being a broker anymore that much more interesting.  But, alas, that is not the case.

What is that case is that we have another outrageous instance where customer funds are alleged to be missing.  Yesterday’s NFA Member Responsibility Action report said PFGBEST, which had nearly $400 million in customer funds as of its June 29, 2012 filing with the National Futures Association was supposed to have $225 million of those on deposit at U.S. Bank, which happens to be the bank of John J. Lothian & Company, Inc. too.  Instead of $225 million that was purported to be there according to PFGBEST filings with the NFA, there was less than $5 million.

What was even more appalling what was next in the NFA report.  When the NFA checked the real balances of the PFGBEST U.S. Bank account going back to February of 2010, when $207 million was supposed to be on deposit at that bank, less than $10 million was actually there back then.

I have a question.  Why are we not calling banks and checking on statements during an audit?  A piece of paper that says someone has millions of dollars in an account is worth nothing.  Verified information from multiple sources is not that hard.  Picking up the phone and talking to a banker is not that hard.  Walking over to the local branch of most FCM banks and talking to a branch banker to confirm a balance is not that hard.

So, we have a problem with missing customer funds not being in the bank account prior to the MF Global blow up and all of the post MFG teeth-gnashing, surprise audits and new rule proposals did not ferret out this alleged shortfall. 

Yesterday, when I read the NFA MRA, I was angry.  I was so angry that I shouted.  Repeatedly.  In my office.  In front of my staff.  I used my outdoors voice indoors.  I am still angry.  But I have stopped shouting.  For now.

This latest problem is a stake to the heart for the futures industry.   We can recover, but it will take leadership, transparency and boldness.  I hope we have it in us.

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