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In PFG fraud, everyone loses — except the lawyers

By Steve Zwick

October 1, 2012 • Reprints

They make sense now, because they were funded by raiding the more than $200 million in customer funds that were kept in segregated accounts at US Bank. The only thing that customers can hope to get back in the short-term is their share of the margin money that was on deposit with exchanges, and trustee Ira Bodenstein says there’s just $181 million of that “on hand.” On September 6, he asked the court for permission to begin sending $123 back in waves, with $58 million held back until he could be sure customer accounts themselves weren’t part of the scam. While the move was long overdue for the liking of PFG customers, the Commodity Futures Trading Commission (CFTC) says the books are still too much of a mess for a dispersal.

Even if approved, the 30¢ to 40¢ on the dollar distribution will not be enough to save scores of IBs and thousands of clients. More than half of PFG’s 400 IBs were guaranteed, meaning they were financially backed and supervised by PFG but also locked into exclusive clearing arrangements with them. Several commodity trading advisors (CTAs), some still smarting from the MF Global debacle, were forced to close shop. 

A hearing on the dispersal is set for Sept 21, but Judge Carol Doyle already has given Bodenstein the green-light to let competing FCMs bid for the PFG accounts. If a suitable FCM emerges, the funds will be transferred to the new FCM, and customers who wish to keep trading simply can do so, while those who want to take their money and run can do so as well.

“It’s very important how that’s done,” says Howard Marella, president of Index Futures Group, an independent IB that uses several FCMs, including PFG. “Opening new accounts takes time, especially if trusts are involved, so it would be best for customers and IBs alike if the accounts are transferred to a new FCM.”

Even if an FCM steps up to the plate, it’s not at all clear how many of those customers will elect to stay or how smaller IBs will manage the transition. 

William Gallwas, president of independent IB Striker Securities, says, “About half our customers were impacted by MF Global, but 90% of them stayed. About 30% of our customers used PFG, and I don’t know how many of them will [stay].”

The implosion of PFG was a central theme at this year’s Burgenstock Meeting in Interlaken, Switzerland, which had been structured around the fallout from MF Global. Swiss Futures and Options Association Chairman Otto E. Nägeli chaired a session titled “MF Global — can similar surprises now be prevented?”

“Well, we know the answer to that,” said Nägeli. “That’s the nature of surprises.”

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Related Terms
Commodity Futures Trading Commission 1289cftc 937Securities and Exchange Commission 905CME Group 851Chicago Board of Trade 574MF Global 379National Futures Association 316Iowa 249UN Court 240Futures Industry Association 210law 163NFA 94PFGBEST 63Peregrine Financial Group Inc. 45PFG 37John Roe 28Customer funds 25Wasendorf 24Ccc 23insurance fund 19James W. Giddens 17Ira Bodenstein 17Tom Harkin 16Ira Bodenstein 11Peregrine Financial Group 10US Bank 10Bad Boys 9Berkeley Research Group 8bank statements 8Swiss Futures and Options Association 7Securities Investors Protection Corporation 6Nickelodeon 4Carol Doyle 4Rebecca Wing 3Rebecca Wing 3Russell R. Wasendorf Sr. 3Index Futures Group 2financial auditing 2William Gallwas 2Howard Marella 2Paul Ehrhardt 2Hope Timmerman 2Sponge Bob We Trust 1WWW Investments 1IB Striker Securities 1PFG US Bank 1segregated bank account balance 1email chain 1Customer Commodity Coalition 1Brenda Cuypers 1

Free Newsletter Modern Trader Follow

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