NEW YORK — Eight months after the shock bankruptcy of MFGlobal, another respected futures brokerage, PFG, is being sued for fraud by US regulators in the latest black eye to confidence in futures trading.
In a complaint filed Tuesday in an Illinois federal court, the US Commodity Futures Trading Commission accused Peregrine Financial Group and its sole owner and chief executive, Russell Wasendorf, of misusing customer funds.
The CFTC alleged that PFG and Wasendorf — who it said tried to commit suicide at PFG’s Iowa office on Monday and is thought to be in a coma — “failed to maintain adequate customer funds in segregated accounts.”
The CFTC alleged they falsified information in filings and overstated the company’s bank deposits, leaving a shortfall that currently, and has previously since 2010, exceeded $200 million.
The CFTC alleged that PFG and Wasendorf used customer funds for purposes other than those intended by its customers, and said “the whereabouts of the funds is currently unknown.”
Tuesday is a “sad day for the futures industry (and) what’s left of PFG,” said Phil Flynn, an energy analyst who left the company on May 31.
Flynn told AFP that one of the reasons he quit the company was news reports saying that PFG was allegedly involved in a Ponzi scheme in Minnesota.
Since February a string of US press reports, in Minnesota and in Iowa, where PFG is based, have suggested links between PFG and a $200 million Ponzi scheme run by Trevor Cook, who is serving a prison sentence.
Victims of Cook’s Ponzi scheme filed a federal lawsuit against PFG, alleging the firm played a key role in the fraud.
“I had concerns based on what I was reading,” Flynn said. “I had no proof that they were doing anything wrong.”
Flynn said “apparently everybody is gone” at the company where he worked for five years. The financial press has evoked layoffs by the hundreds at PFG.
Peregrine executives were not immediately available to comment on the lawsuit.
The Federal Bureau of Investigation said it was involved in the case.
“We are assessing the situation and reviewing the facts,” said an FBI spokeswoman in Omaha.
The CFTC suit came a day after the National Futures Association (NFA), responsible for monitoring PFG for compliance with reporting requirements, took an emergency enforcement action against PFG and Peregrine Asset Management.
The NFA blocked new or additional customer accounts or funds, alleging PFG had failed to prove it met capital and segregated funds requirements.
According to a July NFA audit, “PFG falsely represented that it held in excess of $220 million of customer funds when in fact it held approximately $5.1 million,” the CFTC said.
The PFG troubles evoked memories of larger MFGlobal’s spectacular collapse last October and the disappearance of more than a billion dollars in customers’ funds.
James Williams, an energy specialist at WTRG Economics, lamented the latest blow to the markets.
“Commodities trading has an increasingly bad image,” he said, adding that the majority of traders are “straight-up and honest people.”
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Fox News reporter Chad Pergram tweeted that he was told "there was never any chance [members] who barged into SCIF would be arrested by [capital police], but some members asked to be arrested. They wanted the optic of being frog-marched out of the SCIF in front of TV cameras. That would help w/GOP narrative of Dem process abuse."
Commentator Wajahat Ali called it the perfect example of "martyrdom for snowflakes."
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Wednesday, Republicans stormed a secure room known as a SCIF (Sensitive Compartmented Information Facility), because they seemed to misunderstand the difference between a deposition and a hearing. In Congressional hearings, witnesses will be presented for members of the committee to question. In a classified deposition, the witness can give information that is considered classified for security reasons. Oddly, some members who are allowed in the room were also protesting.
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CNN's Don Lemon typically deals with difficult and intense topics at the top of his weekly show. Wednesday night, however, after a serious opener about Syria and ISIS, Lemon broke into hysterics over President Donald Trump's flub saying he would build a border wall on Colorado's border.
"You know why we're going to win New Mexico? Because they want safety on our border. And they didn't have it," said Trump. "And we're building a wall on the border of New Mexico. And we're building a wall in Colorado. We're building a beautiful wall, a big one that really works — you can't get over, you can't get under. And we're building a wall in Texas. And we're not building a wall in Kansas, but they get the benefit of the walls that we just mentioned. And Louisiana's incredible."