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Pfg's Accounts Frozen After Founder Attempts Suicide


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A US regulator has frozen the accounts of US futures brokerage Peregrine Financial Group (PFG) following the attempted suicide of its chairman.

The National Futures Association said it was worried PFG did not have enough money to meet obligations to clients.

Chairman Russell Wasendorf Sr was found in his car near its Iowa headquarters.

In a statement to clients, PFG said he had attempted suicide, which had prompted investigation of "some accounting irregularities".

The National Futures Association (NFA) said it had received information suggesting that Mr Wasendorf may have falsified bank records and that it only had about $5m (£3.2m) of the $225m it had claimed to have in a deposit account.

Local news reports said that Mr Wasendorf had been taken to the University of Iowa Hospitals where he was in a critical condition.

The problems at PFG are likely to increase calls for tighter regulation of futures brokers. In October, the much bigger brokerage MF Global filed for bankruptcy.

http://www.bbc.co.uk/news/business-18779162

Well, not big enough to cause any macro damage but probably indicative of other stones that haven't yet been turned.

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How do you get an allegedly forged balance to total out on the ledger unless you also forge all of the line items in the journal? It would be very hard to do this and not get caught if anyone bothered to look at the transaction-level detail.

Nick Leeson managed it easily, he shoved his losses (debits) into a debtor account (also debits) headed 8888 IIRC. In the case of this company you just make up spurious incoming money (credits) generating the phantom deposits (debits). If the company says they have received $1m from Wilbur P Weinhouse III and produce a bank statement evidencing this then it will look convincing to a check of the documents.

What all UK auditors do however, every year, is obtain bank letters. They write to the bank independently and ask to be told what the year end balance is on each of the Company's accounts (with a letter of authority to do this). The regulator would rely upon the auditors report and assume (in this country correctly assume) that the bank balances have been verified.

According to this:

Problems were uncovered only after a regulator moved to start verifying customer assets electronically, rather than relying on paper statements that authorities now believe Mr. Wasendorf used to cover the misappropriation, according to people familiar with details of the investigation.

Mr. Wasendorf's suicide attempt, which PFGBest confirmed to clients in a notice Monday, came after its front-line regulator pushed the firm to allow auditors to electronically confirm customer balances directly with PFGBest's bank, according to people close to the investigation.

The shift to an online system, which futures market regulators sought to implement after customer money went missing in the late-October collapse of MF Global, meant that auditors would seek electronic confirmation from the custodian banks holding the money deposited by futures-trading investors to back up their trades. Previously, self-regulatory organizations responsible for auditing futures brokers had relied on paper statements from such banks.

http://online.wsj.com/article/SB10001424052702304022004577518680956762826.html

Nobody had been checking with the bank direct. Brilliant.

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Nick Leeson managed it easily, he shoved his losses (debits) into a debtor account (also debits) headed 8888 IIRC. In the case of this company you just make up spurious incoming money (credits) generating the phantom deposits (debits). If the company says they have received $1m from Wilbur P Weinhouse III and produce a bank statement evidencing this then it will look convincing to a check of the documents.

What all UK auditors do however, every year, is obtain bank letters. They write to the bank independently and ask to be told what the year end balance is on each of the Company's accounts (with a letter of authority to do this). The regulator would rely upon the auditors report and assume (in this country correctly assume) that the bank balances have been verified.

According to this:

http://online.wsj.co...0956762826.html

Nobody had been checking with the bank direct. Brilliant.

yes, what these guys do is misrepresent bank balances.

It seems beyond the regulator to actually check with the bank.....probably used to taking salary statements on mortgage apps at face value.

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Yet another example of the complete failure of the US regulators

It ought to be obvious to a 5 yr old child that you cannot trust a single one of these f*ckers not to be running a criminal operation.

From the largest banks to the smallest brokerage.

Fraud is their business model unless proved otherwise

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http://www.bbc.co.uk/news/business-18779162

Well, not big enough to cause any macro damage but probably indicative of other stones that haven't yet been turned.

Regulators and financial companies have too cosy a relationship.

Newly/part qualified auditors do the spade work but daren't challenge too much because if they do they risk their

promotion chances. Mainly because their boss plays golf or lunches at The Lodge with the companies CEO.

Maybe it's time that auditors are appointed randomly by an independent (if such a thing exists) body and then changed every year.

Annoying as hell because it would mean duplicating some of the previous years work but necessary in my mind.

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http://www.bbc.co.uk...siness-18793472

....and they've gone.

That last sentence must be hard to take for those involved.

Pity the poor customers who had accounts frozen with MF Global, and then opened new accounts with this latest crowd. Quite a few, they say.

I think the crucial transfers in MFG were done through the Square Mile. Wonder if the same happened here.

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