Tuesday, September 25, 2012

PFG Worst

Reuters has an in-depth article about Russell Wasendorf Sr. - the owner of Pergrine Financial Group who stole  ? 200MM USD ? from his customers accounts to fund his own lavish lifestyle.  In my mind this is way way worse than the MF Global blowup.  In the case of MF Global, Jon Corzine's trade showed bad judgement and risk management.  And as MF Global was on its last legs fighting to survive customer funds got co-mingled with house funds.  It is not clear if the co-mingling was intentional or not - but it does not appear to have been deliberately malicious.  But in the PFG case it is clear.  Wasendorf was stealing from his customers and lying to the regulators to cover his tracks.  Perhaps this goes without saying - I don't see anyone coming to Wasendorf's defense.

However nearly as distasteful is the attempt by some members of Congress to use these (and other) financial melt-downs as reasons to attack the CFTC and its SROs.  Both CFTC and NFA are overextended - and underfunded.  And the people it hurts most are those who participate in the futures and derivatives industry.  They may not think it does but it does.  If end-users (read hedgers) don't feel that they are getting a fair, transparent, and safe market then they will not participate.  And if the end-users don't participate then there is no market.  I am not saying that I agree with every rule the CFTC come up with but I certainly do not doubt their sincerity in wanting to keep a fair and orderly market.

For full disclosure:  PFG was once my customer.  I did not like them much and I think we eventually kicked them out.  But I don't really recall why.

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