PFGBest
| PFGBEST.com | |
| |
| Founded | 1980 (Closed 2012) |
|---|---|
| Headquarters | Chicago |
| Key People | Russell R. Wasendorf, Sr., Founder and Chrmn/CEO, Russell R. Wasendorf, Jr., President/COO; Neil Aslin, Vice Chairman |
| Products | Brokerage firm, futures/options, forex |
| Website | www.pfgbest.com |
PFGBest (formerly Peregrine Financial Group, Inc. - PFG), founded in 1980, was a privately held non-clearing Futures Commission Merchant that was shut down in July 2012, in what would become one of the largest fraud cases in futures industry history.
The National Futures Association closed down the firm after massive fraud by its founder and chairman, Russell R. Wasendorf, Sr., in which he falsified banking records to the regulator and stole more than $200 million in customer funds over a 20-year period.[1][2]
Wasendorf was sentenced to 50 years in jail in January 2013 and ordered to pay $215.5 million in restitution.
Reported Accounting Shortfall And Founder Suicide Attempt[edit]
On July 9, 2012 the firm revealed that it had frozen client accounts after its founder was hospitalized following a suicide attempt. That same day, the National Futures Association (NFA) said Peregrine reported it had about $400 million in customer-segregated funds on or about June 29, of which $225 million was on deposit at U.S. Bank. The regulator was reportedly made aware that Wasendorf, Sr. “may have falsified bank records” after finding only $5 million was on deposit.[3][4] On July 10, 2012,the Federal Bureau of Investigation (FBI) confirmed it was involved in investigating the circumstances surrounding a $200 million shortfall in customer accounts discovered at a Chicago-based futures broker.[5]
On July 10, 2012, the Commodity Futures Trading Commission (CFTC) said it had filed a complaint against Peregrine Financial Group, Inc. (PFG) and Russell R. Wasendorf, Sr. alleging fraud, misappropriation of customer funds, violation of customer fund segregation laws, and making false statements. In the litigation, the CFTC sought a restraining order to freeze assets, appoint a receiver and preserve records. Further, the litigation sought restitution, disgorgement, and civil monetary penalties among other appropriate relief.[6] [7]
The morning after the event, word circulated in the trading community that no notice had been received from Jefferies, the clearing broker for PFGBest, that they were failing to meet customer fund segregation obligations.[8] Jefferies, which operated as a non-clearing Futures Commission Merchant, announced today that it began an orderly liquidation of PFG’s positions "after PFG was unable to meet a margin call that Jefferies made in response to yesterday’s National Future Association’s (NFA) Member Responsibility Action." Jeffries announced later in the day that it began an orderly liquidation of PFG’s positions "after PFG was unable to meet a margin call that Jefferies made in response to yesterday’s National Future Association’s (NFA) Member Responsibility Action."
Jefferies, which operated as a non-clearing Futures Commission Merchant, announced the day after the event that it had begun an orderly liquidation of PFG’s positions after PFG was unable to meet a margin call that Jefferies made in response to yesterday’s National Future Association’s (NFA) Member Responsibility Action.[9]
The firm's bankruptcy trustee said in a filing that Peregrine Financial Group had total assets of $270.2 million, far less than the $500 million to $1 billion estimated by the futures brokerage when it failed in mid-July. According to the filing, PFG's debts total $525.3 million.[10]
The CFTC would later sue PFG's bank, US Bank, for its failure to supervise Wasendorf and was ordered by a Federal District Court to pay $18 million in fines in 2015. [11]
CME Group Response[edit]
In late July of 2012, CME Group distributed a letter to customers and to the media, saying that the organization was "appalled by the recent misuse of segregated funds by two firms, MF Global Inc. and PFG, particularly since there has never been anything like it in the history of the futures industry" and said, "But while these firms may have been at fault, it's nevertheless our problem as an industry, and this problem needs a solution. Not protecting customer funds is such a fundamental breach of trust that, without question, the current system in which customer funds are held at the firm level must be re-evaluated. We are exploring the concept of having clearing houses or other depositories hold all customer segregated funds while returning any interest earned on that money back to the FCMs, increasing protections while preserving the operating model for the vast majority of firms who respect and comply by the rules."[12]
On Oct. 25, 2012, CME Group Inc. said it would in November of 2012 begin paying $2 million to former clients of Peregrine Financial Group. The payments were expected to go to nearly 200 farmers, ranchers and cooperatives who traded on CME's exchanges. The payouts would be CME's first from a fund it established in response to the collapse of MF Global, which left a $1.6 billion shortfall in customer funds.[13]
Company History[edit]
Founded in 1980 by CEO Russell R. Wasendorf, Sr., in his hometown of Cedar Falls, Iowa, the company originally focused on alerting investor clients to long-term price trends in commodities and financial markets and opportunities for trading in futures and derivative markets. Wasendorf provided proprietary intelligence. He developed price indexes as instruments to help guide success in futures trading and market forecasting.
Over the years, the company evolved into one offering personalized customer service for a growing group of futures and spot market participants, then expanded into emerging stock index futures products and forex. In particular, the rapid growth in the smaller e-mini stock indexes at then-CME and CBOT, attracted a new group of users to the futures community, and PFG formed a network of futures and options brokers and advisors to respond to that demand.
In 2001, the company hopped on the single stock futures bandwagon as approval for their use was pending in the U.S. In an effort to adequately promote the potential use for these products, Wasendorf launched a magazine, SFO, which then stood for Stock Futures and Options. The magazine broadened its mission when single stock futures failed to drum up the interest people had expected.
PFG was named for eight straight years as one of the Top 50 Brokers[14] (Futures Magazine), and in late 2007 the Futures Industry Association ranked it the 35th largest broker. According to PFGBest's internal financial statement of Jan. 4, 2008, PFGBest reported more than $298 million in customer funds at that time.
PFGBest had branch offices in Chicago; Bloomfield and New York City, NY; Camarillo and Mission Viejo, CA; Cedar Falls, IA; Scottsdale, AZ; Altamonte Springs, FL, and McKinny, TX. It served Canada through an office in Toronto, and its Asian division offered brokerage and other services to clients who speak various Chinese dialects.
In May 2009, Peregrine purchased most operations of Alaron Trading Corporation in a union of two Chicago-based futures dealers. The acquisition was aimed at helping Peregrine extend its reach into managed futures accounts. It was estimated that together the companies would have about $425 million under management.[15]
On Jan. 14, 2008, Russell R. Wasendorf, Jr. was named president and COO, and Neil Aslin, who had been president, was named vice-chairman. Neither were charged in the subsequent investigations.
Products[edit]
As a futures commission merchant, PFGBest offered customers access to futures and futures options markets, managed futures programs, forex, and cash metals. It developed its own proprietary front-end system, BEST Direct (with BEST Direct8 its most recently released trading platform}, for futures and forex trading. It also offered full–service brokerage, trader education, and simulated online trading.
Registration Information[edit]
- PFGBEST.com - NFA ID 0232217
References[edit]
- ↑ How PFG Pulled Off 2 Decades Of Fraud. Investors.com.
- ↑ Russ Wasendorf Confession Letter. Case 6:12-cr-02021-LRR Document 14.
- ↑ Peregrine Investigated Over Missing Money After Suicide Attempt. Bloomberg.
- ↑ Peregrine Financial Group brokerage said to be $220 million short in customer funds. CBS.
- ↑ FBI investigates Peregrine Financial. FT.com.
- ↑ Press Release. CFTC.
- ↑ Case: 1:12-cv-05383: U.S. COMMODITY FUTURES TRADING COMMISSION, Plaintiff, v. PEREGRINE FINANCIAL GROUP, INC., and RUSSELL R. WASENDORF, SR., Defendants. Futures Magazine.
- ↑ PFGBest on Liquidation Only, Receivership Likely. Attain Capital Management.
- ↑ Jefferies Group liquidating all PFGBest positions. Futures Magazine.
- ↑ Peregrine Financial Assets Far Less Than Estimated. Wall St. & Technology.
- ↑ U.S. Bank NA held liable for PFG client fund misappropriation, ordered to pay $18 million in restitution. LeapRate.
- ↑ Open Letter. CME Group.
- ↑ CME Group plans $2 mln payout to former Peregrine clients. Reuters.
- ↑ Top 50 Brokers Edition. Futures Magazine.
- ↑ Futures firms fuse as Peregrine buys Alaron. Crain's Chicago Business.