PFGBest scandal deals farmers another blow after MF Global
CHICAGO (Reuters) - Farmers on Tuesday fumed at the prospect of financial losses, or at a minimum a lengthy wait for the return of frozen funds, due to alleged mismanagement at brokerage PFGBest, and some said they had been burned for the last time.
The U.S. futures industry reeled as regulators accused Iowa-based PFGBest of misappropriating more than $200 million in customer funds for more than two years, a new blow to trader trust just months after MF Global's collapse.
Centered in the heart of farm belt, the firm handled agricultural futures accounts for a number of clients who grow corn, soybeans and cotton.
"For the farmers who are directly affected it can be a very severe financial blow," said Dave Miller, director of research for the Iowa Farm Bureau.
PFGBest revealed to clients on Monday that their money had been frozen and that they would be allowed to liquidate open trading positions but not withdraw funds or make new trades until further notice.
Doug McClelland, who runs Plains Commodities, a one-man brokerage in Lincoln, Nebraska, with about $500,000 in accounts at PFGBest, said three of his farmer customers had already sworn off futures trading after first losing money to MF Global.
Initially, the customers said, "We'll give it one more shot," McClelland said. Traders and exchange officials have said the collapse of MF Global does not seem to cast a lasting chill over market activity. Now, says McClelland, they feel that "somehow the public's money is becoming a depository for a CEO."
The total shortfall at PFGBest represents more than half of its client funds but is modest relative to the estimated $1.6 billion missing from MF Global's accounts.
Unlike MF Global, which is believed to have misused customer funds in a mad scramble to meet margin calls on proprietary trades in its waning days, PFGBest's abuse seems to have extended back years, according to regulators. There is no indication yet of how or why the missing money was used.
Senator Debbie Stabenow, chairwoman of the U.S. Senate Committee on Agriculture, Nutrition and Forestry, said it was "absolutely imperative" to have accountability in futures markets.
"We are working closely with regulators to find out what happened because farmers and small businesses need assurances that their funds are safe from reckless or criminal activity," she said.
Tad Everett, who farms cotton, corn and soybeans on about 2,000 acres in North Carolina, was worried he would never again see the $50,000 he had in accounts at the firm.
He narrowly escaped losing money in MF Global's collapse, having transferred his accounts to PFGBest shortly before the larger firm failed.
Everett was stunned when he learned his money was frozen at PFGBest.
"You never think it's going to happen to you but the dog will bite anybody," he said. (Editing by Cynthia Osterman)
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