But anyone who has been in the derivatives business wouldn’t find that excess unusual. It goes with the territory. But recent events make it appear he became a desperate man: Divorce, eloping in Vegas, signing over power of attorney to his son and apparently, while plundering his firm’s and customer funds, working an extreme ruse to fool the regulator, in this case the National Futures Association (NFA). And of course, the most desperate behavior: Attempting to take his life.
Questions abound: What is wrong with the futures regulatory structure that it could be fooled so easily — especially after the MF Global debacle? What steps are being taken to check financial statements independently? It’s said that the NFA now requests electronic confirmation from FCM banks, and perhaps the jig was up for Wasendorf when this went into effect. But it still doesn’t explain the firm’s internal compliance and how he was able to allegedly steal customer funds when independent confirmation was mandatory. And these underfunded accounts go back to 2010, according to the NFA. So does the entire seg funds system need to be revamped? I’m not so sure the insurance route makes sense, but at the very least, all customer funds should have to be held in a third party (approved) custodian bank or exchange.
Perhaps it’s too early to make judgement calls, but this event demands an industry gut check for the futures business to continue to exist. Capitalism works because people are motivated to keep their businesses strong and healthy to survive, and self-regulation is a subset of that. But maybe that’s no longer enough.