PFGBest: Another Fraud, Another Example Of Weak Auditors and Weak Regulatory Oversight

PFGBest: Another Fraud, Another Example Of Weak Auditors and Weak Regulatory Oversight

My latest column @Forbes is about the most recent futures industry fraud case, PFGBest. PFGBest is another reason why the industry's poor business environment, wracked with a crisis of confidence after MF Global, just got much worse.

All Fall Down; PFGBest and MF Global Frauds Reveal Weak Watchdogs

I have also been extensively quoted in the Chicago Tribune Phil Rosenthal's column this past weekend on the case.

Sterner penalties required to halt wrongdoing in financial industry

PFGBest has a long story behind it. CEO Russell Wasendorf, who admitted to a twenty year fraud on customers in his suicide attempt note, started the firm in 1980, according to MarketsWiki, an online open source knowledge base for current and historical information about the global exchange traded capital, derivatives, environmental and related OTC markets. The site is run by Chicagoan John Lothian who publishes a subscription-only industry newsletter.

PFGBest (formerly Peregrine Financial Group, Inc. - PFG), founded in 1980, is a privately held non-clearing registered Futures Commission Merchant. PFGBest has 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 serves Canada through an office in Toronto, and its Asian division offers brokerage and other services to clients who speak various Chinese dialects. The company also has a network of brokers spanning the globe.

Peregrine Financial Group hit the big time in the mid 1990s when a firm named First Commercial Financial Group was forced by regulators to move its customer business after regulators found financial irregularities. First Commercial's business was moved to Peregrine and to RB&H, the firm headed by then CME Chairman Jack Sandner. RB&H became a part of MF Global. (Sandner is currently chairman of E-Trade Futures and on the board of the CME Group.)

Lothian writes in his blog on July 12:

Former CME Chairman Larry Rosenberg was CEO of First Commercial.

It is safe to say that Mr. Wasendorf did not get the pick of the litter when the customer business, which cleared at RB&H, was split up between RB&H and Peregrine. First Commercial was a party to 75 CFTC reparation cases and a respondent to 10 NFA arbitrations prior to their registration finally being revoked by the NFA in 1996.

Mr. Wasendorf and his firm Wasendorf & Son was also involved with another CME-related firm that had its own unhappy ending, GNP Commodities, headed by one-time CME Chairman Brian Monieson. GNP was the party to 117 CFTC reparation cases and five NFA arbitration awards. GNP also had two NFA, three CFTC and six exchange regulatory actions against it before its registration was revoked.

Of course Alaron also had its problems.  It was a party to 55 CFTC reparation cases, was a respondent to 12 NFA arbitration cases and two NFA, two CFTC and 15 exchange regulatory actions. By contrast, Peregrine was party to 38 CFTC reparation cases and 31 NFA arbitration awards, as well as four NFA and one CFTC regulatory actions.

Larry Rosenberg went on to head Lake Shore, which was also closed for fraud. First Commerical was also invested in by backers of the L & S firm, Glenn Laken and Bob Schialasi. Laken served time while indicted and jailed for securities fraud under NY RICO statutes in 2000. First Commercial owned 49% of  Jack Sandner's RB & H. Unsubstantiated reports say RB & H was also backed by investors Sheikh Abdulla Backesh who is connected to the BCCI Bank $ 10 Billion fraud and had a minority stake and Talat Othman, of Arlington Heights' Dearborn Financial.

Read this article in its entirety at the re: The Auditors, a blog by Francine McKenna.

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