Regulators claim US$220 million ‘missing’ from PFGBest’s accounts

By David Sheppard and Tom Polansek, Reuters

NEW YORK/CHICAGO–Less than nine months after MF Global’s collapse sent shockwaves through U.S. futures brokerages, news that more than half the customer funds at Iowa-based PFGBest are missing is threatening to shatter the fragile confidence in the industry.

PFGBest on Monday told its foreign exchange and commodities customers that their accounts had been frozen after an apparent suicide attempt by its chairman. A few hours later, an industry body said about US$220 million in customer funds were not in the brokerage’s bank accounts.

While PFGBest was less than one-tenth the size of MF Global, the fallout may be larger. If the National Futures Association’s (NFA) report on the missing funds proves accurate, questions about the safety of the brokerage model and whether regulators have again been found wanting are inevitable. The PFGBest disclosure came hours after owner Russell R. Wasendorf Sr. a 40-year veteran of futures markets, was found in his car near the company’s Iowa headquarters, having apparently attempted to commit suicide. He is in critical condition at the University of Iowa Hospitals, according to local news reports. It is not clear what has happened to the missing funds. PFGBest officials were not immediately available to comment.

Local law enforcement officials said the investigation would likely pass to the U.S. Attorney’s Office shortly. The shock was twofold for many in the tight-knit trading industry, who struggled to reconcile the apparent suicide attempt with the well-regarded industry veteran known for his hometown philanthropy and passion for peregrine falcons. “I always thought they were straight shooters,” said Mark Melin, an author and futures-industry consultant, who worked for the Wasendorfs at PFGBest for about two and a half years as a managed futures broker.

“I know them personally, I watched them operate. I’m reserving judgment until the officials come out with definitive confirmed information.” Others expressed less shock. One former employee of the firm said he had grown concerned that Wasendorf didn’t do more to distance the company from a massive US$194 million forex-trading Ponzi scheme run by Trevor Cook in Minnesota, who admitted defrauding more than 700 investors. Cook is serving 25 years in prison. In February, PFGBest, which had acted as Cook’s broker, was fined US$700,000 by the NFA for failing to notice the scheme. The company was subsequently sued for US$48 million by the receiver rounding up the assets from Cook’s scheme.