UPDATE 2: Have no fear though since as recently as January 2012, the CFTC did not find any “material breaches of customer funds protection requirements” at FCMs (firms like PFGBest)
UPDATE 1: Account-holders may not be so surprised to find who is the custodian for the PFGBest FX accounts: none other than huge MFGlobal fans, JPMorgan!
Remember when the entire segregated account fiasco was supposedly fixed in the aftermath of the November 2011 MF Global bankruptcy, and where regulators: the CFTC, the SEC, the CME, and anyone you asked, swore up and down this would never happen again? Turns out that 7 months later, the spirit of MFG has struck again, only this time with one letter switched: it is now known as PFG, as we suggested first 3 hours ago whenwe broke the story. From the just filed affidavit by Lauren Brinati who is working with the National Futures Association, which in turn has just filed notice prohibiting PFGBest from operating further, and freezing all of its accounts:
- 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 US Bank and learned that rather than the $225 million that PFG had reported as being on deposit at US Bank just days earlier, PFG had only approximately $5 million on deposit at U.S. Bank.
Translation: another $220 million segregated account pillage has just taken place, in the vein of none other than Jon Corzine and MF Global.
The money has now officially vaporized.
It is truly wonderful of the NFA to finally get involved, after PFG’s clients have lost about 98% of their cash held with the firm.
In other potential news, a rather prominent New York bank, recently closely associated with marine wildlife, may have just cut its Q2 losses by up to $220 million.
And now for a moment of sarcasm, courtesy of Jack Pearson.
The founder of the US broker PFGBest is said to have attempted suicide as it emerged that more than $200m (£130m) appeared to be missing from clients’ accounts.
Russell Wasendorf Sr, a 40-year veteran of futures markets, was found in his car near the company’s Iowa headquarters and is in a critical condition at the University of Iowa Hospitals, according to local news reports.
The apparent suicide attempt came hours before the National Futures Association (NFA), an industry group that also plays a regulatory role, said it had issued an emergency order to in effect freeze PFGBest’s operations after finding that a US bank account the broker said contained $225m in customer funds actually held only $5m. “It appears that PFG does not have sufficient assets to meet its obligations to its customers,” the NFA said.
One PFGBest broker told Reuters that Wasendorf’s son, Russ Wasendorf Jr, had informed employees about the events earlier in the day, saying a suicide note had been found alluding to financial troubles with the company. The younger Wasendorf “sounded like he was in another world”, he said.
“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.”
The news is likely to renew anxiety over the stability of the brokerage industry less than a year after the collapse of the much larger MF Global. PFGBest, which has brokered trades in US commodity and forex futures and options for 20 years, told customers their funds had been frozen and clients would be allowed to close open trading positions, but would not be able to withdraw funds or make new trades until further notice.
The company told clients: “Some accounting irregularities are being investigated regarding company accounts … Until further notice, PFGBest is not authorised to release any funds.”
Local law enforcement officials said the investigation would be likely to pass soon to the US attorney’s office.
PFGBest is thought to be less than a 10th of the size of MF Global when it filed for bankruptcy last year, so the impact should be less severe. However, many traders are still missing money from that collapse, so the news will still be felt keenly in the industry.