By Tom Polansek and David Sheppard
CHICAGO/NEW YORK, July 9 Independent U.S.
futures broker PFGBest said it had effectively frozen customer
accounts on Monday after a suicide attempt by the company's
founder set off an investigation into possible "accounting
In a dramatic turn that may trigger a new round of anxiety
over the stability of the brokerage industry less than a year
after the collapse of much larger MF Global, the Cedar Falls,
Iowa-based firm told customers that they would be limited to
liquidating open positions until further notice.
The disclosure came hours after owner Russell R. Wasendorf
Sr, a 40-year veteran of commodity markets, was found in his car
near the company's new headquarters, having apparently attempted
to commit suicide. He is in critical condition at the University
of Iowa Hospitals, according to local news reports.
PFGBest, which brokered trades in U.S. commodity and foreign
exchange futures and options, told clients that the National
Futures Association (NFA) and other officials had put its funds
on hold, and that it was in "liquidation-only" status with its
futures commission merchant (FCM), which clears its trades.
"What this means is no customers are able to trade except to
liquidate positions. Until further notice, PFGBEST is not
authorized to release any funds," the note said.
PFGBest officials were not immediately available to comment.
Messages and emails to NFA were not returned.
With about $400 million in segregated customer accounts,
less than a tenth the amount MF Global had when it filed for
bankruptcy, the fallout will likely be less severe. But news of
more financial troubles in the brokerage sector still threatens
to further erode confidence.
There was no indication that segregated funds had been
breached, as is suspected with MF Global.
One broker at the firm said that Wasendorf's son, Russ
Wasendorf Jr, briefed employees about the events earlier in the
day, saying that a suicide note had been found alluding to some
kind of financial troubles with the company. The younger
Wasendorf "sounded like he was in another world."
"Everybody here is obviously in shock," said the broker,
adding that some employees had begun packing up shortly after
"Pretty much everybody around here said we're doomed."
One former employee of the firm said he had grown concerned
that Wasendorf didn't do more to distance the company from a
massive $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 $700,000 by the NFA for failing to notice the scheme. The
company was subsequently sued for $48 million by the receiver
rounding up the assets from Cook's scheme.
FROM BASEMENT TO COMPOUND
PFGBest is far smaller than the big investment banks that
dominate the brokerage business, but was among a dozen or so
well-known independent firms that tended to cater to local
traders, farmers or smaller market players.
Russell R. Wasendorf Sr started as a commodities trader in
the basement of his Cedar Falls home in 1972, offering seminars
and educational programs to other traders. In 1990 he launched
Peregrine Financial Group, which would become PFGBest, and was
an early promoter of electronic trading systems.
He expanded the business in the late 1980s after making a
windfall profit for himself and customers by advising them to
short the financial futures market 10 days before the "Black
Monday" stock market crash of 1987, the firm's website says.
The firm grew significantly over the past decade, opening
offices in Canada and Shanghai, and buying smaller rival Alaron
in 2009. It also moved its headquarters from Chicago back to
Wasendorf's hometown of Cedar Falls.
"It's obviously a lot cheaper to hire someone in Iowa than
it is in Chicago," said the former employee.