Commodity Trading Advisor Bouchard Capital LLC will be shutting its doors later this week because nearly 80% of the client and proprietary money it was trading, $3.4 million of $4.4 million, is tied up in the Peregrine Financial Group fraud.
Bouchard co-founder Morgan Benson says he may have been able to maintain the business if the trustee appointed to handle the Chapter 7 liquidation of PFG had communicated better, or at all, to customers of PFG. “I can’t take my last dollars and pay for business expenses and (National Futures Association) dues if [I don’t know if and when] we will receive a distribution,” Benson says. “They have done a horrible job getting information out.”
PFG filed for Chapter 7 bankruptcy protection on Tuesday, July 10. Ira Bodenstein was appointed Chapter 7 trustee on July 12.
The customers have not received any distribution of funds or been given any guidance as to when they could expect to see any of their money or how much according to Benson. And this is not about stolen money they hope to recoup but monies held at the CME clearinghouse through PFG’s clearing futures commission merchant (FCM) Jefferies.
Benson made that point clear in a letter he sent to PFG Chapter 7 trustee Bodenstein this morning. It states, “A contributing factor to our closure is your (the PFG Trustee’s) total lack of communication with clients and inability to distribute any of the $125 million in Jefferies money. Your lack of communication is troubling when considering your statement to the CFTC, ‘It is my goal to make the process of the estate’s administration as transparent as possible.’”
Benson has spoken to the Trustee since sending the letter and while Bodenstein did provide Benson with information regarding the process, he was far from satisfied. Bodenstein indicated to Benson that a motion to distribute some funds is expected within a month. Apparently the hold-up has to do with verifying many of the PFG accounts.
A statement from Bodenstein posted on the trustee’s website on Aug. 10 notes, “The Trustee is working to be able to distribute funds to customers, with the authorization of the Bankruptcy Court, as soon as possible. However, the Trustee must ensure that any such distribution goes to the correct customers in the correct amounts. Such a distribution would, of necessity, rely on the books and records of Peregrine. This requires that the Trustee be satisfied that he can rely on the accuracy and integrity of those books and records … This is especially important in a case that started because of a fabrication of certain of the company's books and records."
Attain Capital Management’s Director of Communications Lauren Nelson notes in an e-mail that they are far from happy with the Chapter 7 liquidation process. “Nothing about the accounting process, extent of missing funds, or timetable for distribution has been clear,” Nelson says. “What has been clear is that the trustee is sharply unaware of how significant these funds are to those hanging in the balance.”
Attain raises assets for CTAs, including Bouchard, and was a large customer of PFG. Nelson adds, “We have offered our services in the vetting of accounts and paperwork. We have begged the NFA to send over additional staff to help crunch the numbers. In spite of this, no assistance has been taken. The process continues to lumber onward with no end in sight. Our hope is that the trustee finally realizes why time is of the essence here- and soon."
Robert Fishman, partner with Shaw Gussis Fishman Glantz Wolfson & Towbin LLC, attorneys for the Chapter 7 trustee, notes in an e-mail that the trustee is “acutely aware of how important a return of the customer funds to the appropriate customers is to each of those customers.”
However, he pointed out that there are approximately 24,000 PFG customers and the situation was created by an alleged massive fraud. “The Trustee believes that the worst thing he could do is rush to make distributions before he is certain that he is basing those distributions on reliable, confirmable information,” Fishman notes, adding, “The Trustee is not going to publish status reports about what he is discovering until he is sure he has it right,… When the Trustee is sure he has accurate information, he will quickly act upon it."
Bouchard, one of Futures Hot New CTAs for 2011, was down 2.3% in 2012 through June after producing solid returns since launching in September 2010.
Benson also expressed concern over the cost of the liquidation process noting that the MF Global Inc. trustee billed $17 million in the first four months after the firm filed Bankruptcy on Oct. 31, 2011. He reiterated that his main concern is for customers to receive some clarification and education on the process so that they can move forward and not rely on rumors.