Interesting interview on PFG

Ex-PFGBest Employee: Several Red Flags Raised From January

bob5e 

IB customers can setup a securities sweep acct that is protected by SIPC. It appears that the default setting is not to sweep.

Thanks for mentioning that here - I wasn't aware of that as an IB customer. Definitely something I'll need to look into. Thanks again!

Cloudy 

Though I did get this letter from RCG back when the MFGlobal news first went down. Looks like it's still family owned and operated , yet the firm has been around almost a century.

I thought, perhaps somewhat naively, that it was a good case such firms are privately owned and run by the founder (or founder's family). I figured that, if you worked at your family's firm, you would be more prudent than if you're one of the thousands employees at a big, "face less" company. Or that if you build something yourself from the ground up, you would be very risk-averse and oriented on the long-term of your company.

Apparently I was wrong - but I still can't understand well why the owner of a company that he worked 30+ years hard for to establish, does such a thing. What was he thinking?

traderwerks 

Exclusive: Iowa futures broker forged bank records for years-source

Quote from that article:

Quoting 

The source offered new details on how Wasendorf allegedly carried out the deceit, which involved the forging of confidential documents that the NFA uses to verify a broker's cash balance with its depository institution. Wasendorf had set up a post office box in Cedar Falls, Iowa, according to a second person involved in the matter. It was to that post office box that NFA sent the documents, which were addressed to the bank.

So apparently, there were at least two other people besides Wasendorf that weren't involved but very knowledgeable about these irregular actions. I'm wondering why these people didn't raise any red flags with the regulators - such a thing can be done anonymously I assume?

The thing I personally find the worst in this case, besides the fraud itself, is that other people just didn't seem to care. The regulators apparently did the bare minimum that was required by American law (and left their work at exactly five o'clock ) and the sources (apparently working at PGFBest) just shrugged their shoulders and thought "oh it will be okay, I can't be bothered".

At least, that's how it looks to me (but from the outside it's always easy to judge).

Edit: in defence of the people working at the American regulators: they might be seriously understaffed, which causes them to not be able to do their job properly/completely. Let's not hope that's the case, since then a lot of brokers aren't regulated properly as it should be.

Remember the NFA isn't a governmental body, it is "self regulated" by the industry.

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Jura 

I thought, perhaps somewhat naively, that it was a good case such firms are privately owned and run by the founder (or founder's family). I figured that, if you worked at your family's firm, you would be more prudent than if you're one of the thousands employees at a big, "face less" company. Or that if you build something yourself from the ground up, you would be very risk-averse and oriented on the long-term of your company. Apparently I was wrong - but I still can't understand well why the owner of a company that he worked 30+ years hard for to establish, does such a thing. What was he thinking?

If you watch episodes of CNBC's "American Greed" you can see multiple cases of fraud by megalomaniacs or people who lost it when they found how to make big wealth of many millions no matter how illegal. Just my speculation, maybe Wassendorf at his age felt the need, however misguided and detrimental to the clientele, to build something bigger and lasting in his lifetime no matter the cost or risk (like Corzine). There was that news video mentioned earlier where he was investing in other businesses and public utilities outside of the brokerage.

Great interview, watch

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Peter Brandt yesterday on Bloomberg on PFG, discussing incompetence of CFTC

Bloomberg Video

Mike

Source: PGF Files Chapter 7 | ZeroHedge

Quoting 

Peregrine Financial Group Inc, the regulated unit of the brokerage PFGBest, has filed to liquidate under Chapter 7 of the U.S. bankruptcy code, a court filing shows. Tuesday's filing with the U.S. bankruptcy court shows that Peregrine has between $500 million and $1 billion of assets, between $100 million and $500 million of liabilities, and between 10,000 and 25,000 creditors. A board resolution authorizing the bankruptcy was signed by President Russell Wasendorf Jr, who also signed on behalf of Chairman Russell Wasendorf Sr. The resolution said Russell Wasendorf Jr was empowered to act for Russell Wasendorf Sr in the event the latter became incapacitated, under a power of attorney dated July 3.

Quoting 

Russell Wasendorf Sr attempted suicide on July 9. Thompson said in a phone interview today that Wasendorf was found in his car with a note, the contents of which the sheriff declined to divulge. A hose ran from the vehicle’s exhaust pipe into the passenger compartment, he said. An officer with the sheriff’s office arrived just after 8 a.m. yesterday at Peregrine offices, where paramedics were attending to Wasendorf, according to an incident report e-mailed to Bloomberg News. Wasendorf was breathing as he was taken from his car and was incoherent, according to the report. He was later airlifted to University of Iowa Hospitals in Iowa City, it said. “A note was found in the vehicle that indicated possible discrepancies with accounts at Peregrine Financial Group,” according to the report.

Mike

Jura 

.... Apparently I was wrong - but I still can't understand well why the owner of a company that he worked 30+ years hard for to establish, does such a thing. What was he thinking? ....

Honestly, I don't know how anyone can live with themselves after doing something like this -- something he didn't need to do to be comfortable -- to so many people. How would someone feel sitting on their death bed with this kind of rip-off sitting on their shoulder?

Jura 

in defence of the people working at the American regulators: they might be seriously understaffed, which causes them to not be able to do their job properly/completely. Let's not hope that's the case, since then a lot of brokers aren't regulated properly as it should be.

And beyond being understaffed, the system itself and those closer to the top may 'encourage' them to do nothing.

heywally 

Honestly, I don't know how anyone can live with themselves after doing something like this -- something he didn't need to do to be comfortable -- to so many people. How would someone feel sitting on their death bed with this kind of rip-off sitting on their shoulder?

If you've seen the movie "Rogue Trader", you can get an appreciation for how something can snowball out of control. I am not saying that is what happened here, as it seems to just be a case of greed, but it does remind us how an initial small "error" can turn into a huge one very quickly, and you can get caught up in it.

Like everyone else has pointed out, the issue here is not in stopping someone from committing a crime, as that is unlikely. The issue is protecting the innocent, in this case the depositors.

Hopefully we'll see some form of insurance as a result of this.

Also, I am not exactly clear on the exact responsibilities with this particular case when it comes to NFA and CFTC. I need to learn more about this. I know CFTC has brought suit, and as a governmental body has authority to prosecute. But it is not clear how the oversight worked on a day-to-day basis (to me), which seemed to fall more on the NFA, which has no real authority. The NFA is like being a member of the BBB...

Mike