Friday, 1 July 2016
Last updated 15 hours ago
Jul 10 2012 | 1:44pm ET
Futures brokerage PFGBest all but collapsed today as federal regulators sued its parent company and founder, who attempted suicide yesterday.
The Commodity Futures Trading Commission accused Peregrine Financial Group and CEO Russell Wasendorf of fraud, alleging that some $200 million—half of PFGBest's customer assets—were missing. And, unlike the case with MF Global, which collapsed last year, the fraud at PFGBest was allegedly a years-long affair.
The CFTC filed its lawsuit today, a day after the National Futures Association put its funds on hold and froze its accounts. Jefferies Group, PFGBest's clearing bank, immediately began to liquidate PFGBest's customers' trades when the broker missed a margin call. Jefferies said that the liquidation was "orderly."
"Jefferies has already liquidated a substantial portion of those positions and expects to be able to expeditiously liquidate the remained in a fair and reasonable manner, after which all proceeds of the liquidation will be maintained in segregated accounts," the bank said today. PFGBest counts a number of hedge funds and commodity trading advisers among its clients.
The bottom began to fall out from under PFGBest yesterday, when Wasendorf was found in his car near PFGBest's Cedar Falls, Iowa, headquarters. A suicide note was found in his office. Wasendorf is currently in critical condition at the University of Iowa Hospitals and Clinics.
Wasendorf's son, also Russell Wasendorf, briefed employees yesterday and revealed that the note had been discovered. One employee told Reuters that he sound "extremely depressed, confused, stunned."
According to the CFTC, an account that PFGBest claimed held $220 million on behalf of 1,845 clients actually held only $5.1 million. The regulator said that shortfalls in customer accounts date back to at least February of 2010, and that Wasendorf "falsified bank records." The NFA said that PFGBest made have inflated customer account balances between February 2010 and March 2011 by as much as $190 million.
In addition to the lawsuit, PFGBest also faces a probe by the Federal Bureau of Investigation.