The PFGBest revelation raises serious questions about the safety of the U.S. Futures industry. One of the themes that had been struck throughout the MF Global mess is that the safety of segregated funds had been absolute up until that “one-off” event. Now, apparently customer segregation has been violated twice in nine months.
In a complaint filed this morning against PFG and Russell Wasendorf Sr. by the Commodity Futures Trading Commission (CFTC) alleging fraud, misappropriation of customer funds, violation of customer fund segregation laws and making false statements, the Commission 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 goes on to say, "PFG and Wasendorf have used customer funds for purposes other than those intended by its customers, and consequently, have misappropriates these funds. The whereabouts of the funds is currently unknown."
Additionally, the U.S. Federal Bureau of Investigations (FBI) is participating in the probe, according to Sandy Breault, a spokeswoman for the FBI's Omaha office. "We are currently reviewing the facts of the situation,” she said, declining to elaborate.
Jefferies, the clearing firm for PFGBest, which operated as a non-clearing Futures Commission Merchant, announced today that it began an orderly liquidation of PFG’s positions "after PFG was unable to meet a margin call that Jefferies made in response to yesterday’s National Futures Association’s (NFA) Member Responsibility Action."
This comes nine months after the MF Global debacle and six months after the CFTC along with CME Group and the NFA completed a review of 70 firms holding customer segregated funds. The CFTC reviewed the 14 largest firms and CME and NFA reviewed the remaining 56 firms.